ECB inches forward with plans for wholesale CBDC

The European Central Bank (ECB) has confirmed its interest in probing the possibilities of blockchain technology settlement for financial services, focusing on central bank digital currency (CBDC).

According to reports from the ECB’s meeting, the regional banking regulator is set to reveal plans for the trial work of a wholesale CBDC system in October. Individuals who know the matter submit that the ECB will take applications from interested participants in November, focusing on commercial banks and blockchain technology service providers.

The ECB is expected to formally begin its experiments in the second quarter of 2024, with “mandatory preparation testing” scheduled to start by the end of 2023. Under the planned schedule, the experiment will make use of real currency. Still, it will be limited in its capacity and timing.

The mandatory preparation testing phase will explore the technicalities and operational procedures involved during the pilot stage, while the legal framework will be within the purview of the ECB Governing Council. According to the report, the Governing Council will approve a regulatory and legal framework before the start of the preparation testing.

The ECB has yet to disclose information on participants’ eligibility criteria, hinting that it may give credence to existing national frameworks and licenses.

Ahead of the planned studies, the ECB recently converged to consider using blockchain technology-based settlement systems for the third time. During the last meeting, participants proffered several solutions, including blockchain technology use cases in liquidity management and the tradability of assets.

Participants noted that blockchain technology showed significant promise in providing a multijurisdictional approach to Know Your Customer (KYC) processes, providing solutions on “how all actors could benefit from efficiency in the financial market.”

The ECB is seeking proposals for establishing a payment-versus-payment (PvP) transaction settlement for Eurosystem. The meeting involved presentations from JPMorgan’s (NASDAQ: JPM) Onyx, Goldman Sachs (NASDAQ: GS), SWIFT, and Intesa Sanpaolo, with an underlying theme being the need for interoperability between different blockchain technology platforms with other currencies.

Progress with the digital euro

The ECB has been making significant progress with the digital euro as it eyes a 2026 launch date. The digital regulator will promote user privacy and financial inclusion while complementing the use of cash within the region, according to the banking regulator.

“A digital euro will be designed to take on board people with no access to a bank account and with low digital or financial skills, as well as people with disabilities,” said the ECB.

As the EU moves forward with a digital euro bill, commercial banks have raised the alarm over the possibility of disintermediation stemming from the widespread use of the retail CBDC. The banks are pushing for greater participation in developing and launching the digital euro to mitigate the risks.