Retail CBDC

Experts from the euro area national central banks and the ECB participated in the experiments, which were grouped into four work-streams. These work-streams assessed different design features covering four main areas: the digital euro ledger, privacy and anti-money laundering (AML-CFT), limits on digital euro in circulation, and end-user access. The objective was to address the key design questions that had been left open by the Report on a Digital Euro. The experiments were conducted in a multidisciplinary environment and also involved participants from academia and the private sector, without endorsing any specific technical solution.

Banque de France actively contributed to these experiments, in particular for one of the work-streams focusing on the ability to combine existing systems (conventional centralized ledgers) with newer technologies, such as distributed ledger technology (DLT), in a tiered approach. In this approach, the central bank would issue digital euros and provide them to intermediaries in the first tier, while intermediaries would distribute those digital euros to end-users in the second tier.

Overall, the experiment evidenced that a tiered model such as the one tested in this experiment could be a suitable architecture for the digital euro. From a technical point of view, it demonstrated the feasibility of combining centralized and decentralized systems, which allows accommodating several use cases and supporting various functionalities of a future digital euro, including the use of Central Bank Digital Currencies for interbank settlement and cross-border payments.

Further, this approach offers a number of additional benefits. First, thanks to its open architecture, the tiered model can accommodate new platforms at the tier 2 level, enabling the addition of novel, innovative features along the way. Then, the flexibility of the design allows to enforce potentially different rules on each platform (AML-CFT requirements, limits), to either reflect the existing regulation in a specific country or tailor them to specific use cases (e.g. facilitation of financial inclusion, non-residents). Finally, the tiered model allows for a high degree of involvement from the private sector, foreseeing various potential roles for private entities (distribution of digital euros, management of customer interface, regulatory compliance, development of value-added services, and operation of some components of the system).

The work performed by the central banks in this experiment intends to support policy discussions and decision-making of the Eurosystem on the design of a potential digital euro during the investigation phase that the Governing Council decided to launch on 14^th July 2021.