In an announcement last month, the European Central Bank (ECB) revealed the five companies that have been selected to partake in a “prototyping exercise” as part of the two-year investigation phase of the digital euro project.
Amazon, Caixabank, the European Payments Initiative (EPI), Nexi and Worldline are each tasked with developing front-end prototypes to explore how the back-end technology of the ECB’s digital euro will integrate into existing retail, commercial, and bank infrastructures. The exercise is expected to be completed in the first quarter of 2023 by which time the ECB will publish its findings.
Read more: Amazon, Nexi, Worldline, CaixaBank, EPI Join Digital Euro Project
Each company will explore a specific use case of the digital euro, with Amazon developing e-commerce payment prototypes, while Caixabank investigates peer-to-peer (P2P) online payments.
EPI, on the other hand, will focus on point-of-sale payments initiated by the payer while Nexi tests those initiated by the payee, and Worldline will explore how the digital euro might work with P2P offline payment.
Related: How the Digital Euro Can Help Address Disintermediation, Sovereignty Issues
Commenting on the inclusion of an American firm — Amazon — in this important phase of the digital euro project, Jürgen Schaaf stressed that “our wish to strengthen our monetary autonomy with a digital euro does not mean that Europe would shut down all its gates for retailers from abroad.”
See also: ECB Advisor Defends Amazon’s Role in Digital Euro Project
Toward Cross-Border CBDC Transactions
Whereas the ECB’s prototyping exercise will examine how the digital euro will interface with the private sector stakeholders, the work of the Bank for International Settlements (BIS) Innovation Hub is more international in its scope and has been more focused on the mechanisms for cross-border central bank digital currency (CBDC) interoperability.
BIS’ Innovation Hub recently announced a partnership with central banks in Israel, Norway and Sweden to launch ‘Project Ice-breaker’ aimed at testing the use of CBDCs for international retail and remittance payments.
Learn more: Sweden, Norway and Israel Central Banks Test Cross-Border CBDC Payments
The initiative will see the central banks connect their domestic proof-of-concept CBDC systems to explore the technical feasibility of interlinking different national CBDCs.
The scheme is the latest cross-border CBDC experiment to be coordinated by the BIS Innovation Hub. The Hub was also involved in ‘Project Dunbar,’ a collaboration between the Reserve Bank of Australia, Central Bank of Malaysia, Monetary Authority of Singapore, and South African Reserve Bank.
See also: ECB, Fed, BoE Work on an Interoperable CBDC
In September, BIS also revealed that it has successfully completed a CBDC pilot involving the Hong Kong Monetary Authority (HKMA), Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Central Bank of the United Arab Emirates (UAE).
Related: China, Thailand, UAE, BIS Test Cross-Border CBDC Payments
From Project Dunbar, the concept of a ‘multi-CBDC’ platform emerged, in which a single blockchain based transaction protocol governs the intermediation between technically diverse digital currencies.
As Andrew McCormack, head of the BIS Innovation Hub, explained, “a common platform is the most efficient model for payments connectivity but is also the most challenging to achieve.
Project Dunbar further identified three critical questions: which entities should be allowed to hold and transact with CBDCs issued on a multi-CBDC platform, how the flow of cross-border payments can be simplified while respecting regulatory differences across jurisdictions, and what governance arrangements can give countries sufficient comfort to share national infrastructure as critical as their payments system.
Having proven that the concept of ‘multi-CBDCs’ was technically viable in Project Dunbar, these questions will likely inform the latest three-country collaboration, which will examine the specific challenges of interlinking the digital shekel, e-krona and e-krone, in a controlled test environment.
Finally, as the emerging field of digital currencies moves into its next phase, more cooperation between central banks will be needed. And one of the key concerns to address is how governance mechanisms that create trust and shared control can be designed into the new technology without threatening the monetary sovereignty that central banks are responsible for upholding.
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