FRANKFURT: The European Central Bank on Wednesday formally launched a pilot project to create a “digital euro”, in response to the growing popularity of electronic payments and the rise of cryptocurrencies.

“Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money,” ECB president Christine Lagarde said in a statement. The initial “investigation phase” is to last two years and will focus on the digital euro’s design and distribution options, before a final decision is taken on whether to proceed. The move comes as policymakers around the world explore so-called central bank digital currencies (CBDCs) as a stable and risk-free alternative to crypto assets like bitcoin and Facebook’s planned diem currency.

Central banks are also responding to increased demand for digital payment options as cash use continues to decline, a trend fuelled by the pandemic and the desire to avoid contact.

The Chinese central bank is already trialling a digital renminbi in several cities, while the Bank of England has launched a taskforce to look into a possible “britcoin”.

The US Federal Reserve and the Bank of Japan are also researching digital currencies.

The ECB has previously signalled it could take around five years overall to bring the e-euro to life, meaning a rollout isn’t expected before 2026. The Frankfurt institution also stressed that any future digital euro “would complement cash, not replace it”.