ECB Sets Aside $730 Million for Offline Payments in Digital Euro Initiative

The European Central Bank (ECB) is taking a significant leap towards implementing a digital euro by allocating a portion of its $1.3 billion budget for contracts to enable offline payments for the proposed digital currency. This move showcases the ECB’s determination to embrace the digital era and compete with private cryptocurrencies.

Over $730 million, more than half of the contract budget, is specifically set aside for the development of offline payment capabilities. The ECB has called for applications from various providers to offer a range of services, including risk management, information security, and user applications. The majority of the budget is directed towards the crucial aspect of offline payments.

While central banks worldwide are exploring central bank digital currencies (CBDCs), the European Union, particularly the 27-nation Eurozone, has shown significant interest in preparing for a digital euro. The ECB, responsible for overseeing the euro used by approximately 340 million people in 20 EU countries, has actively explored the issuance of a digital version of the currency. In 2023, legislative proposals were introduced, outlawing interest and large holdings, while promising offline payments from day one.

Despite ECB officials repeatedly assuring that the work on a digital euro does not guarantee its issuance, the recent call for providers suggests that legislative promises are pressuring the ECB to deliver on its proposals. In addition to the application calls, the ECB has provided an update on the development of a rulebook for the CBDC.

While the $1.3 billion budget may seem substantial, Jonas Gross, chairman of the Digital Euro Association, notes that the expectations set by the ECB require a significant investment. Gross emphasizes that the budget appears reasonable when considering the complexity of delivering a flawless product in the market over several years.

The focus on allocating more than half of the budget to potential providers of the offline component of the CBDC highlights the importance of overcoming obstacles related to offline payments in CBDC implementation. The ECB plans to introduce two digital euros for retail payments, with one specifically designed for offline use, including offline holdings.

The selection of service providers remains uncertain, considering the ECB’s past scrutiny for choosing Amazon to create an e-commerce prototype for the digital euro in 2022. Gross suggests that the ECB may opt for more traditional finance players with a presence in Europe.

Conclusion:
As the ECB progresses its digital euro project, moving it to a preparation phase in October, the final decision to issue a digital euro depends on the finalization of legislation in the European Parliament. However, with proposals facing political opposition, approval is not guaranteed, adding an element of uncertainty to the future of the digital euro.