The next steps in the transition process to the second and final part of the preparatory phase of the digital euro project have been presented by the Governor and senior executives of the Central Bank of Cyprus.
The presentation was made during a 6 November press conference held at the Bank's headquarters in Nicosia, with Governor Christodoulos Patsalides noting that the adoption of the digital euro is becoming imperative as digital payments are growing rapidly and the world is becoming increasingly digital.
They added that negotiations on the proposed legislation are ongoing in the Council of the European Union and the European Parliament, with the process expected to be completed by 2026, with the contribution of the Cyprus Presidency of the Council of the EU during the first half of the same year.
In his greeting, the Governor of the CBC, Christodoulos Patsalides, initially referred to last week's decision by the Governing Council of the European Central Bank to proceed with the second and final part of the preparatory phase of the digital euro project.
As noted, this decision follows the successful completion of the first part of the preparatory phase, which began in November 2023 and laid the foundations for the possible issuance of the eurozone's common currency in digital form.
Extensive user research
He added that during the first part of the preparatory phase, the Eurosystem conducted extensive user research focusing on vulnerable consumers and small merchants, with the findings demonstrating the need for a simple, reliable, and secure payment experience.
"It is our view that developing a digital euro that works for everyone will empower citizens, support innovation, and strengthen the resilience of our monetary system," he continued.
He added that money is a public good and that central banks are its custodians. "As the European Central Bank and as the Central Bank of Cyprus, we believe that the adoption of the digital euro is becoming imperative as digital payments are growing rapidly and the world is becoming increasingly digital," he noted.
In closing, he said that the adoption of the digital euro has received the support of the European Council, which calls on the European Central Bank and other participants in the project to accelerate the procedures for adopting the digital euro as soon as possible, with final approval resting with the European Parliament.
Complement and not replace cash
Next, the Head of the CBC's Payment Supervision Directorate, Stelios Georgakis, presented the next steps in the preparation for the digital euro.
He began by stating that the digital euro will complement and not replace cash, bringing its advantages (simplicity, privacy, reliability), while it will be provided free of charge for basic use throughout the euro area, with the guarantee and support of the European Central Bank.
He added that the digital euro will make everyday life easier for citizens by offering an additional payment option with legal tender status, and will also contribute to strengthening Europe's resilience, as today approximately two-thirds of electronic payments in the European Union are processed by non-European companies.
He then referred to the first part of the preparatory phase, which included the creation of a comprehensive handbook of rules and standards for the practical implementation of the legislation, the final version of which will be published after the legislation is adopted, the selection of European providers for the development of the infrastructure and services of the digital euro platform, the development of a methodology for setting limits on the amount of digital euro that can be held by each user, and conducting citizen-focused research, the results of which, he said, showed both a high willingness to use the digital euro and the potential to promote healthy competition in the field of payments.
Strengthening the resilience of European payments
He added that, moreover, a digital application has been designed that would be accessible to all, and a function has been developed for using the digital euro offline, which, among other things, would strengthen the resilience of European payments in times of crisis, along with an ongoing cooperation between the European Central Bank and market participants, as well as with co-legislators in Brussels.
"The results of the completed first phase confirm the European Central Bank's commitment to developing a digital euro that will serve all citizens, promote innovation, and strengthen the resilience of our monetary system," he stressed.
Referring to the next phase, Georgakis described it as a critical milestone, bridging the design with the initial release of the digital euro, explaining that it will build on the work already completed and include the development of the technical infrastructure, testing the basic functions of the infrastructure, and creating communication structures to ensure the project's success.
"Once the European co-legislators have adopted the legislation, the pilot programme and testing could then begin, so that the Eurosystem is ready for a possible first issuance in about four years. In simple terms, we have three main stages: legislation in 2026, a pilot phase from 2027, and full technical and operational readiness by 2029. This timeline is crucial for banks, payment service providers, and businesses that are also preparing by evaluating infrastructure, designing products, and reviewing processes," he emphasized on the subject.
Three main pillars
Referring to the objectives of the next phase, he said that it is organized around three main pillars of work: implementing the technical foundations of the digital euro, ensuring that the system is functional and secure through pilot tests and basic settings; close cooperation with payment providers, merchants, and consumers with a targeted information and branding strategy to ensure that the digital euro is not only functional, but also visible and credible, as well as technical assistance from the ECB to co-legislators to ensure clarity in the drafting of legislation.
Regarding the legislative process, he said that in order to ensure that the euro is used in the digital world as a single currency without fragmentation across the euro area, it is necessary to establish and regulate the digital euro, with the European Commission using this legal basis in the proposed regulation on the digital euro and the Eurosystem supporting this Regulation, as it will ensure the uniform provision of digital euro services in all euro area countries.
He added that the Eurosystem also supports another European Commission proposal to safeguard easy access to and acceptance of cash, despite the continuing decline in its use. "For this reason, it is crucial that citizens continue to have access to cash and be able to pay with it. Only in this way will the actual status of cash as legal tender be maintained, in accordance with European Union law," he stressed.
Negotiations on the proposed legislation are ongoing
He also noted that negotiations on the proposed legislation are ongoing in the Council of the European Union and the European Parliament, with the process expected to be completed by 2026, with the contribution of the Cyprus Presidency of the Council of the EU in the first half of the same year.
"The new phase that began a few days ago prepares us for the future. The course of action is realistic, prudent, and serves the public interest: first we lay the foundations, then we conduct pilot tests, and only after the legislation comes into force will the Governing Council of the European Central Bank decide on the possible launch of the digital euro," concluded Georgakis.
The presentation was followed by a discussion with media representatives, during which issues relating to the implementation of the digital euro in everyday life and technical details of its use in practice were highlighted, as well as issues of transparency and security of transactions.
Regarding the political aspect of adopting the digital euro, CBC executives noted the progress made at the EU Council level, with the aim of reaching a compromise proposal by the end of the year, while also referring to delays and conflicting views in the corresponding European Parliament process, expressing optimism, however, that a final legislative text will be agreed within the planned timetable.
(Source: CNA)
