LONDON — The European Central Bank will create a digital version of the euro currency and investigate its application for 24 months, according to statements out Wednesday.
The decision had been widely expected since ECB President Christine Lagarde indicated in recent days that further work would be done on the digital euro.
The move marks the beginning of real-world experimentation with the digital version of the official single EU currency. The ECB and national central banks have previously tested prototype versions of the digital euro, according to a press release.
“This will not prejudge any future decision on the possible issuance of a digital euro, which will come only later,” said Fabio Panetta, a member of the ECB’s Executive Board, in a public letter, adding, „In any event, a digital euro would complement cash, not replace it.“
In a blog post, also published Wednesday, Panetta said, „Our aim is to be ready, at the end of these two years, to start developing a digital euro, which could take around three years.“
The investigation will seek to steer the design of the digital currency to minimize financial crime, as well as assess its potential effect on banks, financial stability and monetary policy. The research “will also shed light on the changes to the EU legislative framework which might be needed for introducing a digital euro,” said Panetta.
The ECB and European Parliament will hold a “discussion” on the functions and policy objectives of the digital euro by the end of 2021, Panetta said, with controversial issues such as user privacy left for the first half of 2022. The ECB has previously admitted that a digital euro would come with privacy trade-offs.
Regarding privacy concerns, which are largely rooted in the digital euro’s capacity to gather and store user data, Panetta said there will be tight legal constraints at the EU level around who has access to the information.
“I would expect that there will be very careful safeguards to avoid any abuse,” he said in response to a question from POLITICO. “Even the central bank will have limited access to that information if the access will not be fully justified.”
Other EU institutions — such as financial regulators, the Commission and the Eurogroup of national finance ministers — will also be brought into the loop, said Panetta.
“Issuing a digital euro would affect our whole society,” he added, pledging to open the ECB up for scrutiny from the European Parliament on the topic.
Panetta also said policymakers will need to work closely with the technical experts behind the digital currency to ensure that it follows the law. “Some features of a digital euro may not be possible on the basis of European legislation or on the basis of the constitution of individual countries,“ he told journalists in a press briefing after the announcement.
More details of the scope of the investigation also appeared Wednesday in an ECB briefing note.
This article has been updated.