Digital Euro should prioritize online, peer-to-peer payments, ECB says

A digital euro should prioritize online purchases and making payments among friends, the European Central Bank said in documents published on its website.

The slideshow, published for a Wednesday meeting, says other uses such as paying taxes, receiving welfare payments, or even paying in physical stores would only follow in a later, second tranche of developments for the central bank digital currency (CBDC).

The ECB is one of many global jurisdictions considering whether to issue a CBDC. It is scheduled to take a formal decision later this year – but its officials are already thrashing out technical options, and say that it will need to have multiple applications to address user needs and market gaps.

“In practical terms, a staggered approach would contribute to ensure a smooth end-user payment experience” and “reduce the implementation complexities” of trying to roll out new systems all at once, said the document, produced by the ECB’s digital euro project team.

The first release would be for e-commerce, and for peer-to-peer payments made among private individuals, the document said. Officials on the team have previously said use cases like paying wages, or applications that could align with decentralized finance, should be kicked into the long grass and considered only in a later phase.

Free money

Using the digital euro for private individuals should be free for basic applications like onboarding and making payments, a separate document produced for the same meeting said – but it added there could be new laws to discourage banks from charging merchants too much for use.

Payment service providers “would be able to charge merchants,” but “legislation might establish an expectation on merchant pricing considering the current levels for comparable retail payment solutions,” the document said.

That broadly mirrors current arrangements for cash handling – though European Union laws known as the Single Euro Payments Area and Interchange Fee Regulation limit the charges that banks and card operators can make for bank transfers and credit card payments.