By
Tolu Ajiboye
April 17th, 2024
The ECB has finalized its digital euro prototype scheme as it mulls whether to roll out the government-backed token.
The European Central Bank (ECB) has finalized a digital euro prototype ahead of a development decision. Later this year, the leading central bank would decide whether to develop the fiat euro as a digital variant.
According to a Friday report, the ECB examined distributed ledger technology and smart contracts as prime components of a potential digital euro. However, the governing bank has reservations about using decentralized-influenced smart contracts.
The ECB’s findings on its digital euro prototype came in two publications, namely market research and prototyping exercise.
ECB Executive Board Member Explains Findings of Digital Euro Prototype Scheme in Detail
Commenting on the broader scope of the eurozone bank’s investigative phase, ECB Executive Board member Fabio Panetta explained:
“This exercise shows that it is possible to smoothly integrate the digital euro design choices into the existing payment landscape while leaving ample scope for innovative features and technologies.”
In a recent letter to Committee on Economic and Monetary Affairs (ECON) Chair Irene Tinagl, Panetta added:
“The feedback received has helped the Eurosystem to better understand the current level of knowledge in the market and the existing experience in building solutions and identifying suitable technologies to potentially implement a digital euro.”
The ECB Executive Board member concluded that the investigative phase would shape the potential euro’s functionality and design.
“The findings of the prototyping exercise and our market research will serve as input for both the functional and technical design of a digital euro. These reports can be shared under embargo with ECON Members of the European Parliament,” Panetta put it.
The Eurosystem invited several market participants to participate in its “learning experiment,” with the resulting prototypes used as research tools. Nonetheless, the eurozone’s monetary authority said the market research helped it understand industry-specific knowledge. The Eurosystem also said it acquired invaluable experience in developing potential digital euro technical solutions.
ECB CBDC Prototyping Exercise
The ECB conducted its digital euro prototyping exercise between July 2022 and February 2023. The investigative phase began nine months after the Governing Council of the ECB greenlit the digital euro project. During this period, the Eurosystem prime component researched various use cases for the central bank digital currency (CBDC).
The exercise entailed the integration of five user interfaces developed by different providers for various experimental causes. In addition, the Eurosystem also created a single settlement system to serve as a back-end prototype. However, the monetary authority said it developed the back-end and front-end (five user interfaces) prototypes solely for research purposes. As a result, neither prototype class processed any personal data during the exercise. Furthermore, the Eurosystem does not intend to use the developed prototypes further following the experiment’s conclusion.
ECB Executive Board Member Weighs Possibility of Digital Euro Issuance
The ECB has mulled the possibility of a digital euro issuance as a European payment enhancer since CBDCs exploded in popularity. Panetta addressed the European Parliament in Brussels in March, emphasizing digital euro user optics. At the time, the ECB Executive Board Member said the CBDC would add value for end users.