How will the digital euro work? A preliminary analysis of design, structures, and challenges

Abstract

The ECB has been working on the potential introduction of a digital euro for several years. This article provides an overview of how a digital euro is intended to work. An examination of the prospective design features and architecture of the digital euro reveals the complexity of the project and the challenges associated with integrating the digital euro into the existing payment landscape. In order to justify the huge investments from both the Eurosystem and the private sector, a high adoption rate by users is essential. Therefore, a digital euro needs to offer a competitive advantage over existing electronic payment instruments, which could refer to the unique scope comprising online and offline transactions, as well as the trust of retail customers in the Eurosystem. Hence, a convincing communication strategy is needed to convey the benefits of a digital euro. Moreover, banks and other payment service providers need to have sufficient economic incentives to distribute the digital euro to their customers and to provide acquiring services to merchants.