Updated Digital Euro Legislation Supports Permissionless Blockchains

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This week, the EU’s parliamentary Committee on Economic and Monetary Affairs convened to discuss the digital Euro, unveiling an updated draft of the digital Euro legislation with significant revisions, including backing for permissionless blockchains. The draft now allows conditional payments in digital Euros on permissionless distributed ledgers, expanding beyond privately issued assets like crypto-assets or stablecoins.

The legislation also addresses key concerns raised by banks, notably regarding holding limits and fees. It shifts decision-making responsibility for holding limits from the European Central Bank (ECB) to banks and payment service providers (PSPs), potentially offering banks a competitive edge. However, non-bank PSPs may exploit this flexibility to offer higher holding limits, posing a challenge to traditional banks.

Additionally, the legislation now leaves the determination of inter-PSP fees to the market, granting more autonomy to payment service providers. It also acknowledges the need for banks to cover implementation costs within inter-PSP fees.

Regarding the use of wallets, the ECB clarified that only payment providers without proprietary wallets are required to use the ECB wallet, alleviating concerns about mandatory use. Moreover, the legislation extends the requirement for digital Euro services to most PSPs, not just banks.

To address conflicts of interest, the draft legislation mandates the establishment of an independent digital Euro unit within the ECB.

The parliamentary European Committee on Civil Liberties and Justice (LIBE) has since endorsed the digital Euro report, indicating support for amendments to establish the digital currency as legal tender. This endorsement, largely divided along party lines, signifies a significant shift from previous reservations.

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