ECB Board Member on Digital Euro's Potential
European Central Bank board member Piero Cipollone underscored the digital euro's potential to enhance payments in the euro area. In a recent speech, he highlighted opportunities for robust digital identity integration and fraud mitigation, in addition to instant settlement. The digital euro's development is expected to influence both retail and wholesale payment infrastructure.
- The project is now in a preparation phase, which began in November 2023, to finalize the rulebook and select technology providers; a decision on whether to issue a digital euro will only occur after the EU's legislative process is complete. Assuming legislation is adopted in 2026, a pilot could start in mid-2027, with a potential first issuance in 2029. - To prevent fraud, the system will feature a centralized fraud detection mechanism to support payment service providers (PSPs) by analyzing transaction patterns across the network. The ECB has named Feedzai as a key partner to provide this central risk and fraud management component, which will supply real-time risk scores for every transaction. - For privacy, offline digital euro payments will offer a cash-like level of confidentiality, with transaction details known only to the payer and payee. For online transactions, the Eurosystem will use pseudonymization and encryption, preventing it from directly linking payments to specific individuals. - Supervised intermediaries like banks will be responsible for all end-user services, including onboarding, account management, and providing digital wallets. The ECB will not have direct interaction with end-users. - A key motivation for the digital euro is to reduce Europe's dependence on non-European payment solutions, such as international card schemes, which would strengthen the region's monetary sovereignty. - The ECB has worked with five companies—Amazon, CaixaBank, Worldline, EPI, and Nexi—to prototype different user interfaces and test payment use cases. This experimentation phase has helped refine technical specifications for features like offline payments and integration with the existing financial landscape. - To prevent the digital euro from competing with bank deposits and to maintain financial stability, individual holdings will be capped—a limit around €3,000 is being considered—and the digital currency will not be remunerated. Merchants will have a zero holding limit, requiring them to convert digital euro back into commercial bank money. - On the wholesale side, the Eurosystem is exploring solutions for settling transactions recorded on distributed ledger technologies (DLT) with central bank money, partly to counter the growing influence of US dollar-denominated stablecoins.
