European Central Bank Shows It’s Serious About Enabling Digital Euro Offline Use

The European Central Bank (ECB) is offering a big chunk of cash to contractors who can enable offline payments for a retail digital euro.

In calls to find providers for a range of features, including risk management, information security and a user application, the ECB revealed plans to allocate as much as 1.2 billion euros ($1.3 billion) to potential contractors. More than half is earmarked for the offline payments service.

While around 100 economies worldwide are considering issuing a central bank digital currency (CBDC) as a way to sashay into the digital age and compete with private cryptocurrencies, among major jurisdictions, the 27-nation European Union is showing particular interest in preparing for one.

For the past few years, the ECB has been exploring issuing a digital version of the euro, the currency used by around 340 million people in 20 EU countries. In 2023, the bloc’s executive arm even proposed legislation for the digital currency, outlawing interest and large holdings, while promising offline payments from day 1.

Although officials at the ECB have repeatedly said the work on a digital euro is not a commitment to issue one, the calls for providers indicate promises made in the legislative proposals could be putting pressure on it to deliver.

Last week, alongside the application calls, the bank published an update on the development of a rulebook for the CBDC.

The $1.3 billion may seem like a lot of money, but what the ECB’s asking for is no mean feat, Jonas Gross, chairman of industry group the Digital Euro Association (DEA), said in an interview. For the ECB’s expectations, the budget seems reasonable, he said.

“My first reaction was, oh, man, this is really a lot of money,” said Gross. “But when you think about it's a contract that goes for a few years, where [the ECB] really expect the partners to deliver a product that’s … really kind of perfect to be implemented on the market.”

More than half the budget, as much as 56%, is promised to potential providers of the offline component of the CBDC, Gross pointed out.

“This, I think, shows that this is serious, they want this, … you could also interpret it in that there are still some open questions, and there is just a lot of expertise from vendors required to get this on the street,” Gross said.

Enabling offline payments is widely viewed as one of the most important hurdles to overcome when it comes to implementing CBDCs. The ECB is planning two digital euros for retail payments, with one of them exclusively for offline use with holdings too held offline. Gross said he envisions one app that enables both versions, and says building such a product in a user-friendly way may be a challenge.

Who the ECB ends up choosing to build out these services is also an open question. In 2022, the ECB was lambasted by EU lawmakers for choosing U.S. tech giant Amazon to create an e-commerce prototype for the digital euro.

Gross said the ECB might shy away from “exotic” choices and stick to traditional finance players with some presence in Europe this time.

These developments follow the ECB moving its digital euro project to a “preparation phase” in October to flesh out a rulebook and select providers to help build the platform. A decision on issuing a euro comes after legislation is finalized in the European Parliament, but with proposals facing political pushback, approval is not guaranteed.