Core Focus: The two-tier architectural model of the digital euro, the distinct roles of the ECB and intermediaries, the technical infrastructure, and the hybrid ledger approach combining core banking and distributed ledger technology.

In-Depth Notes:
The digital euro is built on a two-tier architectural model that balances central bank control with private sector innovation . In this model, the ECB issues digital euros, while commercial banks and payment service providers (PSPs) act as intermediaries, providing end-user services via digital euro wallets and managing customer interfaces . This design is intended to preserve the role of commercial banks in the financial system, leverage their existing customer relationships, and ensure that the digital euro is integrated into the broader payments ecosystem .

The Technical Infrastructure:
The digital euro architecture combines a central core ledger operated by the ECB with distributed ledger technology (DLT) components . The core ledger is essentially the “digital central book” in which all transactions are recorded reliably and in real time, maintaining primary responsibility for the money supply and compliance with all legal requirements . DLT components complement the core ledger, enabling programmable payments, smart contracts, and—critically—offline payments . The ECB is exploring the use of the UTXO (unspent transaction output) model, where payments are represented not as simple entries in an account but as individual digital tokens that can be spent—similar to individual banknotes . This token-based approach has the advantage of protecting users’ privacy, as account balances are not disclosed; only individual transactions are visible . The architecture is designed to support interoperability with existing payment systems and open standards, providing a “common acceptance layer” for account-to-account and point-of-sale transactions across the euro area .

Intermediaries’ Role and Responsibilities:
PSPs will carry out standard AML/CFT and other compliance checks when users fund or defund their digital euro wallets . They will also be responsible for customer identification and authentication, KYC checks for online payments, the funding and defunding of digital euro wallets, and related control and reconciliation processes . This intermediation ensures that the digital euro complies with existing regulatory frameworks while distributing operational responsibilities across the private sector.

Potential Impact on Traditional Settlement Systems:
The introduction of the digital euro could lead to a fundamental overhaul of payment infrastructure . Traditional settlement systems such as TARGET2 or SEPA could eventually be replaced by an API-driven platform on which banks act more as service providers for wallets, requiring banks to redefine their role in the payment ecosystem .