Global: European Central Bank Allocates €1.2 Billion for Digital Euro Development

In an unexpected move for early 2024, the European Central Bank (ECB) has announced its readiness to invest €1.2 billion in private-sector partners to facilitate the development of a digital euro.

Selected institutions will have broader responsibilities beyond creating a digital euro application. They will also be entrusted with developing offline payment solutions and managing fraud, as specified by the ECB.

The central bank outlined initiatives for which it will seek partners:

1. Development of Offline Payments (€662 million): Focus on creating solutions for offline transactions.
2. Risk and Fraud Management (€237 million): Addressing the crucial aspects of risk mitigation and fraud prevention.

The ECB’s move is considered a significant step toward an initiative that aims to mirror physical cash in the world’s leading trading bloc, with a $19 trillion economy.

While some remain skeptical about the legitimacy of the digital euro, proponents believe the project will provide Europeans with a domestically developed payment system, strengthening the financial infrastructure of the eurozone.

The ECB clarified in its announcement that it is not making a commitment to launch any of the listed development work.

The surprise announcement contrasts with ECB President Christine Lagarde’s statement in October 2023, indicating a two-year timeline for the development of a central bank digital currency (CBDC).

Regarding potential candidates for the contracts, Jonas Gross, Chairman of the Digital Euro Association and COO of crypto payments firm Etonec, anticipates interest from established CBDC tech providers with offline capabilities. Global financial consultancies, major tech firms, and specialized software companies may also participate.

In a September 2022 initiative, the ECB selected five partners to develop the CBDC prototype, favoring established players with a solid track record. Amazon was among the chosen partners, sparking controversy due to concerns about the tech giant’s data protection practices.

Privacy remains a primary concern for the digital euro, with consumers wary of potential surveillance scenarios. The ECB reassured that it would not have access to personal data, which would stay with commercial banks hosting the digital euro.

Despite skepticism and conspiracy theories, the ECB aims to move forward with the digital euro initiative, emphasizing its potential to enhance the financial sovereignty of the eurozone in the face of dominant American payment giants.

Simultaneously, policymakers are laying the legal groundwork for CBDC legislation, led by centre-right lawmaker Stefan Berger in the European Parliament. The ECB affirmed that no final decision on launching a digital euro would be made until the legislation is complete.