CBDC digital euro is taking shape

European Central Bank aims to upgrade its CBDC to align with the expectations of the financial sector. One of the two options on the table is creating entirely DLT-based central bank money.

Euro logo made with ones and zeros

European Central Bank (ECB) is finally joining the blockchain party. The institution revealed the plan to move its wholesale settlements to a distributed-ledger technology (DLT) platform in an effort to adapt its financial infrastructure to evolving technologies.

Speaking at a symposiumPayments and Securities Settlement in Europe – today and tomorrow” in Frankfurt am Main on September 26, Fabio Panetta, member of the executive board of the ECB, said that the bank is “assessing the potential of DLT and the extent to which it could improve our services.”

With various market players experimenting with DLT, the institution feels urged to upgrade to new standards, which “would entail a shift from using centralized databases for transferring cash and assets to using decentralized networks instead.”

Panetta quotes the benefits of DLT, such as instant and around-the-clock transaction settlement, supporting a wider range of assets, enabling participation from new stakeholders, including non-financial corporations, and programming transactions for automatic settlement according to predefined conditions. Moreover, DLT used for securities post-trade processes could increase efficiency with lower costs and processing times.

Panetta also clarified that the planned shift to DLT is not the same as introducing CBDC. He reminds that the “wholesale CBDC has existed for decades” and „it has provided efficient digital infrastructures for the settlement of transactions between banks in central bank money.”

Currently, ECB is looking at two options. The first involves creating a link between central bank infrastructures and external DLT platforms based on the existing TARGET Services – a centralized ledger for settling wholesale digital transactions within the Eurosystem. The second involves building an entire DLT settlement service from scratch with DLT-based central bank money, which implies creating a blockchain-based digital euro.

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Both options are to be carefully assessed. As Panetta remarked, “experiments conducted by both private firms and central banks must still prove that DLT can offer more benefits than existing technologies.”

However, ECB is already taking serious steps towards putting its DLT/CBDC plan into action. On September 16, the institution informed about the selection of “external companies for joint prototyping of user interfaces for a digital euro”. The prominent member of this team is Amazon. The company will develop the front-end for e-commerce payments.