Slicing the Elephant: Inside the Design of a Digital Euro

Evelien Witlox is a busy woman.

When she’s not running between events – briefing European Union policymakers, banks or the Sibos finance conference this week – she’s designing the digital euro, a new format for the world’s second-biggest reserve currency.

As European Central Bank program manager for the central bank digital currency (CBDC), she has already set out exactly who would use it (initially people and governments, with intra-business and machine payments following later). Just two weeks ago, the ECB set out how its new form of money could work offline, safeguard privacy and prevent bank runs.

Those aren’t the last or most controversial topics on the agenda before the ECB’s senior executives make a decision, due in September, on whether to actually issue the thing. Witlox, previously an executive at Dutch bank ING, has an appropriate metaphor for such a mammoth task.

“We have sliced the elephant,” Witlox said in an interview with CoinDesk. “We have sliced this development of this design into many smaller decisions.”

The eurozone isn’t the only jurisdiction looking at a CBDC; Nigeria and the Bahamas have already deployed one, and around 100 jurisdictions in total are researching or developing. Yet, other major central banks, such as the U.S. Federal Reserve, don’t seem to be in a rush – not least because of the many design and policy issues a digital currency raises.


One of those issues, highlighted recently by ECB board member Fabio Panetta, is what kind of rules will apply to financial intermediaries – the banks and payment companies that would process digital euro transactions.

Witlox is now looking to hire a coordinator to draft that rulebook, according to an ECB statement made on Monday, after our interview.

Read more: Peer-to-Peer Validation for Digital Euro Might Not Be Feasible, ECB Says

Witlox told CoinDesk the rulebook could look like the direct debit messaging standards already used by many Europeans to pay household bills via bank transfer – allowing more flexibility in how the digital euro is used.

“The solution will be interoperable and standardized, so that it doesn't matter which intermediary you work with,” Witlox said.

That’s needed precisely because, as it stands – and much to the ECB’s chagrin – there’s currently no single European bank or payment system that operates across the euro area. But there’s plenty more decisions that will follow, and not all are going to be straightforward for lawmakers and the finance industry to agree on, Witlox said.

Blockchain or not?

The supposedly technocratic selection of U.S. web giant Amazon to aid with ecommerce prototypes for a digital euro has already led to political backlash. Other squabbles seem likely to follow over thorny topics such as how intermediaries will be compensated, or how to protect peoples’ privacy.

Plus the ECB must decide what technology it’s going to use for the CBDC – and, crucially, whether it will adopt Web3 innovations like decentralized ledgers and blockchain technology.

Witlox, no starry-eyed blockchain evangelist, isn’t in a rush to make that call.

Read more: EU Lawmakers Attack Amazon’s Involvement in Digital Euro Project

“The focus now is on the functionality,” she said. “The decision on which technology to use will only be taken later when it has become clear which technology is best suited.”

Cryptocurrencies like bitcoin (BTC) have decisions validated by consensus without any central entity. Panetta has already said he wants to keep “full control” over issuance and settlement, suggesting the ECB won’t be following that model. The C stands for Central, after all.

But Witlox said she’s still looking to work with a decentralized technical infrastructure, in part to mitigate concerns that a single data store would prove an attractive honeypot for hackers.

“Obviously we need to keep track of our ledger,” she said – just as a bank would do, or a regular person managing a household budget. “But this would not exclude the usage of [distributed ledger] technologies.”

It’s still possible that, even after making so much fuss, the ECB will decide to abandon its project. Witlox said the final decision will rest on a cool-headed weighing of pros and cons – testing whether the putative CBDC meets the objectives set out in July, such as fostering innovation and boosting efficiency.

Read more: Europe's CBDC Designers Wrestle With Privacy Issues

And then will come the final challenge for the digital euro: whether people actually use it in daily life. Even without using cash, European shoppers have a range of options available to them – they can pay via contactless cards, mobile wallets and QR-code scans – and, Witlox said, the digital euro will complement those payment means, not replace them.

The ultimate question is whether anyone would bother, amid such an embarrassment of riches, to use the ECB-backed system – and it’s a question that is still hanging.

A report published Tuesday by the ECB shows that previous CBDC initiatives haven’t always been successful – and there’s no guarantee of success from using whizzy technology or fancy public information campaigns. Witlox is undeterred.

“It’s a safe asset to pay with, because it is a liability of the central bank,” Witlox said. “We will make sure that this is indeed a product that the end user would want to regularly use.”

Read more: New Global CBDC Platform Could Cut Payment Costs, IMF Says