The European Central Bank (ECB) is allocating over $700 million from its $1.3 billion contract budget for contractors to develop offline payment capabilities for a retail digital euro.
In its search for providers offering various services such as risk management, information security, and user application, the ECB disclosed its intention to assign up to 1.2 billion euros ($1.3 billion) to eligible contractors.
As approximately 100 global economies contemplate launching a central bank digital currency (CBDC) to transition into the digital era and rival private cryptocurrencies, the European Union, encompassing 27 nations, is notably keen on developing its own CBDC.
Over the past few years, the ECB has been examining the feasibility of a digital version of the euro, the currency used by around 340 million people in 20 EU nations. In 2023, the bloc’s executive arm proposed legislation for this digital currency, focusing on prohibiting interest and large holdings and ensuring the availability of offline payments from the outset.
Although the ECB has not firmly committed to issuing a digital euro, recent developments, including calls for providers, suggest that legislative proposals are influencing its actions. The ECB recently updated its progress on developing a CBDC rulebook, further indicating its movement towards a digital euro.
Offline digital euro
The ECB plans to introduce two forms of the digital euro for retail payments, including one exclusively for offline transactions.
Over 56% of the allocated budget of 1.2 billion euros ($1.3 billion) is designated for the development of the offline component of the CBDC.
Jonas Gross, chairman of the Digital Euro Association and COO of crypto payments firm Etonec, emphasized in a statement the complexity of this task. He noted that developing a user-friendly app that supports both online and offline versions of the digital euro requires diverse expertise, ranging from wallet development to backend solutions.
The selection of contractors for this project is a topic of much speculation, especially following the ECB’s controversial choice of Amazon in 2022 to create a prototype.
European Parliament members expressed concerns over Amazon’s reputation, citing the American technology giant’s evasion of European data protection laws and its subsequent $887 million fine in 2021.
Other selected partners in the prototype phase included CaixaBank and Worldline, a French international payment service. However, there is no assurance that these entities will be involved in future developments.
Gross anticipates that established CBDC technology providers with offline capabilities will be eager to participate in this project. He also suggests that global financial consultancies, Big Tech firms, and specialized software companies might be contenders for the contracts.
The ECB’s move to a “preparation phase” in October was a significant step in finalizing a rulebook and selecting providers for building the platform.
Although the decision to issue a digital euro will follow the legislation’s finalization in the European Parliament, its approval is not certain due to political pushback.
Privacy remains a key concern
Privacy concerns are paramount among consumers, who fear a scenario where the ECB could track their spending digitally. To address these concerns, the ECB has stated that it would not access personal data, leaving it with commercial banks responsible for hosting the digital euro.
While policymakers debate the utility of a digital euro amidst other digital payment options, ECB leaders and EU officials argue that a digital euro could enhance the financial sovereignty of the eurozone.
The move could potentially challenge the dominance of American payment giants like Visa and Mastercard, bringing control back to European entities.
Source: https://crypto.news/european-central-bank-allocates-over-700m-to-propel-offline-digital-euro-development/