ECB report: Preparations for digital euro continue, with focus on holding restrictions and privacy issues

The European Central Bank (ECB) has published its second progress report in the preparatory phase for the launch of a digital euro. Among other issues, holding limits and legal coordination of central bank digital currencies (CBDCs) are discussed in the report. After reviewing the digital euro rulebook under development, the Rulebook Development Group has launched seven workstreams led by market participants and central banks to continue its development. The rulebook seeks to harmonize national laws to guarantee common standards. A report on its progress was published in September, and another report is due in July 2025. The ECB said it is continuing to study digital euro user profiles to determine the needs of potential users. This input will include user preferences for holding limits, which will be taken into account in technical studies with national central banks. Politico reported in October that holding limits have become a point of contention between the ECB and national central banks. To maintain a maximum holding limit, one solution currently under consideration is a “reverse waterfall”, which automatically transfers excess digital euros to fiat currency in linked bank accounts. Solutions for offline transactions are still under study, the report said, without giving too many details. A major theme of the report is the competition between European and non-European service providers in the financial market, and the need for more technological services such as wallets. The report emphasizes: "Payment service providers (PSPs) will be able to use the digital euro infrastructure to create new payment services. The digital euro will also help European regions and domestic programs to expand their payment service range using digital euro acceptance networks." The report also points out that "it is possible to make some improvements to the user experience of the digital euro so that citizens with stronger privacy preferences can enjoy cash-like privacy." (Cointelegraph)