Experimental work conducted by the ECB over the past nine months found no major technical obstacles to any of the assessed design options for both the Target Instant Payments Settlement System and alternatives such as blockchain. The experiments also suggested that architectures combining centralised and decentralised elements are possible.

“It has been nine months since we published our report on a digital euro. In that time, we have carried out further analysis, sought input from citizens and professionals, and conducted some experiments, with encouraging results. All of this has led us to decide to move up a gear and start the digital euro project”, says ECB President Christine Lagarde. “Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money”.

During the project’s investigation phase, the Eurosystem will focus on a possible functional design that is based on users’ needs, says Lagarde. It will involve focus groups, prototyping and conceptual work.

The project will also shed light on the changes to the EU legislative framework which might be needed. The technical work on the digital euro with the European Commission will also be intensified.

To cap it off, the investigation phase will assess the possible impact of a digital euro on the market, identifying the design options to ensure privacy and avoid risks for euro area citizens, intermediaries and the overall economy. It will also define a business model for supervised intermediaries within the digital euro ecosystem.

ECB board member Fabio Panetta says: "In concrete terms, this means that we will commit the resources necessary to design a marketable product. But a decision about whether or not to issue a digital euro will only come at a later stage. And in any event, a digital euro would complement cash, not replace it."

A market advisory group will take account of prospective users’ and distributors’ views of a digital euro during the investigation phase. Those views will also be discussed by the Euro Retail Payments Board.

Says Pentta: "Our aim is to be ready, at the end of these two years, to start developing a digital euro, which could take around three years."

Despite the lengthy timeframe, the initiative could pave the way for some short-term gains in in the regulatory treatment of cryptoassets in general. Anders Nysteen, senior quantitative analyst as Saxo group says: “The regulatory initiatives within the EU have a much shorter timeframe and will, if implemented, be a quantum leap for crypto regulation, and can pave the way for Europe to become a global standard-setter, as well as boosting the sentiment around digital assets.”