ECB publishes first progress report on CBDC development

ECB publishes first progress report on CBDC developmentChristine Lagarde, President of the European Central Bank (New York Times)

In this post:

  • The ECB’s first progress report on the digital euro focuses on privacy, with measures like pseudonymization and encryption to protect users.
  • An offline digital euro feature will allow transactions without internet, aiming to mimic cash-like privacy and convenience.
  • The ECB is working on holding limits and integration with commercial bank accounts to ensure financial stability and ease of use.

The European Central Bank (ECB) has released its first progress report on the development of a central bank digital currency (CBDC). The June 24 update emphasizes the ECB’s efforts in creating a secure, private, and efficient digital payment system.

The ECB states that it is committed to ensuring the highest privacy standards for online and offline digital euro transactions. The report highlighted the importance of pseudonymization, hashing functions, and encryption features to protect users from being tracked through their transactions.

ECB publishes first progress report on CBDC development
Source: ECB

These measures are designed to make digital payments as private as cash transactions, providing a level of anonymity that is currently lacking in most digital payment solutions.

In offline transactions, personal transaction details will only be known to the payer and the payee without involvement from payment service providers, the Eurosystem, or any supporting service providers. This approach ensures that users can enjoy the same level of privacy as they do with physical cash.

Related: Japanese banks will boost crypto liquidity: Arthur Hayes

The ECB promises even higher privacy standards for online transactions, leveraging advanced technologies to prevent transactions from being directly linked to specific users.

Payment service providers will only have access to the personal data necessary to comply with EU laws, such as anti-money laundering regulations. Any use of personal data for commercial purposes will require explicit user consent.

As the issuer and payment infrastructure provider for the digital euro, the ECB will be supervised by independent data protection authorities to ensure compliance with the European Union Data Protection Regulation (EUDPR) and the General Data Protection Regulation (GDPR).

Offline digital euro and holding limits

The ECB is developing offline functionality for the digital euro, allowing users to make payments without an internet connection. This feature would enable direct transactions between offline devices, such as mobile phones or payment cards.

ECB publishes first progress report on CBDC development
ECB headquarters in Frankfurt, Germany. Credits: Reuters

Additionally, the ECB is examining the potential use of battery-powered smart cards or non-powered smart cards that communicate through a bridge device.

The technical work includes considerations for delivering offline functionality, funding and defunding offline digital euro wallets and performing anti-money laundering and forgery checks.

Users can pre-fund their digital euro accounts via the Internet or an ATM and use their mobile devices for offline payments.

To ensure financial stability and effective monetary policy transmission, the ECB has started developing a methodology for calibrating digital euro holding limits.

Individual digital euro holdings will not be remunerated and will be subject to holding limits. Users can link their digital euro wallets to commercial bank accounts, enabling them to make payments without pre-loading their digital euro wallets with funds.

Related: Europe uses Iota’s web3 ID solution in KYC processing

As legislative deliberations continue, the ECB will provide technical expertise to support the discussions. This includes analyzing the dynamics in the euro retail payments market, exploring the feasibility of multiple digital euro accounts per user, and developing a highly inclusive and accessible digital euro app.

The ECB remains engaged with all stakeholders to ensure the success of the digital euro project, emphasizing its role as a common European endeavor.

Jai Hamid

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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