Today the European Central Bank (ECB) published a second progress report on the preparation phase of the digital euro. It highlights progress on developing the Rulebook, outsourcing parts of the work, user design research and design issues, including holding limits.
In November 2023 the Eurosystem started the two year phase, with the European Central Bank’s (ECB’s) Governing Council due to decide on whether to launch the central bank digital currency (CBDC) at the end of 2025, subject to the passage of regulations.
The most contentious aspect of the update relates to holding limits.
Digital euro holding limit debate
The Eurosystem has gathered feedback from various parties on the topic. Part of the digital euro design is a feature that sweeps money into and out of bank accounts if the digital euro balance breaches holding limits. It’s referred to as the waterfall and reverse waterfall functionality.
This feature is central to the holding limit debate. Consumer groups want higher limits for usability and convenience. Banking groups want lower limits because the digital euro is intended for payments, not as a store of value. Plus, banks are concerned about losing deposits. That’s something that worries central banks as well from a financial stability perspective.
Consumer bodies are less keen on the (reverse) waterfall functionality. In some cases that’s because it adds complexity, affects usability and reduces privacy. They also want to support the unbanked. One consumer group, AGE, made a specific recommendation for a holding limit of around €3,200, the average EU monthly salary. They said the limit could be raised over time.
By contrast, The European Association of Co-operative Banks (EACB) proposed a €500 limit for individuals, a figure previously proposed by the banking sector. It also wants the figure set in the legislation to avoid changing the figure too easily.
Recently Politico reported that individual EU states are not happy about the ECB having the authority to set the holding limit.
Despite starting work on the topic in Q2 2024, it is still a work in progress.
Other progress updates
The Digital Euro Rulebook is the key operational document for how the digital euro system will operate. Based on the feedback from industry so far, the areas that attracted the most responses were end-to-end flows, user journeys and business rules.
In January the ECB announced a tender process for five pieces of work totaling up to €1.1 billion, with the responses currently being considered. National central banks are submitting offers for internal components. There was also an industry call relating to conditional payments and innovations in October, and last week another one relating to branding.
Other ongoing tasks include researching user design preferences and work on an offline digital euro is progressing. The latter focused on the use of secure elements on mobile devices and engaging with manufacturers. They also identified which standards can be re-used at point of sale terminals to ease integration.
Meanwhile, the EU elections this year interrupted the legislative process that has now restarted. However, there’s some continuity as the Rapporteur, the MP that coordinates the legislative work, is Stefan Berger, who led the process before the election.
