The European Parliament’s Committee on Civil Liberties and Justice (LIBE) has overwhelmingly voted to endorse the latest digital euro report backing the European Central Bank’s (ECB) proposed digital euro, taking the bloc one step closer to a central bank digital currency (CBDC).
The draft legislation would make a proposed CBDC legal tender and was passed by a resounding 48 in favor of with only six against (and with seven abstentions).
A digital euro has been in the works since June 2023, and the latest draft of the bill, approved by LIBE on February 15, includes amendments that provide support for
permissionless blockchains and address prior concerns raised by European banks. It also states that payment providers can use their own wallets.
Last Wednesday, Piero Cipollone, Member of the Executive Board of the ECB, the body that would set the standards for a digital Euro, gave a speech to the EU Committee on Economic and Monetary Affairs of the European Parliament, praising the idea of a Europe-wide CBDC.
“A digital euro would be a European means of payment which could be used free of charge, for any digital payment, anywhere in the euro area. Together with cash, a digital euro would preserve European citizens’ freedom to use a public means of payment,” said Cipollone.
“Cash and a digital euro have the same objective: ensuring that everyone, regardless of their income, can pay in any situation of daily life. This is a fundamental right.”
He went on to tell the Committee that, “the digital euro will need broad support. We are therefore committed to supporting your work as co-legislator. And we are engaging with all stakeholders.”
Cipollone noted to the Committee that its legislative deliberations will frame the technical work of the ECB to implement a digital euro and “will continue to do so.”
He also updated the Committee on four key issues that are central to the ECB’s preparation phase, namely: searching for possible providers to develop a digital euro platform and infrastructure, preparing the digital euro rulebook, ensuring the stability of the financial system, and offering a higher level of privacy when making digital payments.
However, not everyone has been as effusive in praise of a European CBDC. Previous iterations of the digital euro draft legislation elicited some concerns from the banking sector.
Specifically, concerns were raised about a mooted €3,000 ($3,232) holding limit being too high, resulting in a drain on bank deposits. The latest draft of the bill dealt with this by transferring decision-making responsibility for the holding limits from the ECB to the banks and payment service providers (PSPs) themselves. It suggested that banks might want to set the amount as the equivalent to daily cash withdrawal limits on client debit or credit cards. However, this latter point is not prescribed.
The legislation would also require banks to act as intermediaries, providing basic CBDC services for free without receiving direct compensation from the EU.
With LIBE, the EU parliament committee responsible for protecting civil liberties and human rights in the bloc, having signed off on the latest draft of the digital euro bill, it stands a good chance of passing a full EU parliament vote. If and when it eventually does so, the ECB will have the authority to decide when to issue the CBDC.
The road to a Digital Euro
In June 2023, the European Commission unveiled its legislative proposals which detailed the plan to make the digital euro legal tender and make it available across the eurozone, while still preserving cash payments.
The first legislative proposal focused on safeguarding the role of cash and ensuring it would remain universally accepted as payment. A CBDC would exist alongside the current payment options, the plan said.
On October 18, 2023, the Governing Council of the ECB decided to proceed to the next phase of the digital euro project, the “preparation phase.” This commenced in November 2023, when the ECB began testing to explore technicalities and operational procedures. It is expected to formally begin experiments on a CBDC in the second quarter of 2024.
In the meantime, the ECB Governing Council is preparing the accompanying legal and legislative framework in cooperation with the European Commission.
In January this year, the ECB’s Rulebook Development Group (RDG) published an update report on the draft rulebook that would eventually set the standards and procedures for the digital euro.
The report provided insight into the technical aspects of the EU’s CBDC design, and the RDG encouraged feedback on the draft to help shape the process going forward.
“Based on the feedback received as part of this process, the RDG will consider making adjustments to this first draft as required,” the central bank said. “The draft rulebook will be sufficiently flexible to accommodate any future adjustments and will be updated in accordance with the outcome of the digital euro legislative process.”
The RDG said the first draft of the rulebook is an intermediate version that covers the functional and operational models, including the end-to-end flows describing the functioning of all use cases and services relating to a digital euro; the high-level architecture and standards, which should potentially be considered in a digital euro landscape; and the adherence model setting out the rights and obligations of members in accordance with the draft legislation.
It is likely a full European Parliament vote on the digital euro will not happen until after EU election in June 2024.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: CBDCs: The rules will apply, like it or not
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