European Central Bank steps up wholesale digital euro trials

The European Central Bank (ECB) is stepping up its central bank digital currency (CBDC) trials, and as it revealed in a recent meeting, it’s assessing the demand, security, and performance of a wholesale digital euro.

ECB held a meeting in October, the details of which have just recently been unveiled. In the meeting, the central bank shared the themes it’s exploring in the upcoming trial phase with industry stakeholders.

The regional bank is conducting the experiments in two ways—some through trials and the rest through research. The trials are going to probe aspects such as the digital euro’s reliability, settlement performance, safety and security, efficiency, and automation. They will also examine its energy consumption and how it handles information management.

The trials will also delve into how effectively it integrates with existing market decentralized ledger technologies. As countries like Nigeria have shown, integrating with existing infrastructure is critical for the success of any CBDC. The West African country isolated commercial banks and other fintech operators, with the central bank pushing the eNaira independently. This has resulted in a low uptake of Africa’s first CBDC as the central bank was ill-equipped to handle the retail aspects of a digital currency.

While the ECB will use trials to investigate the interoperability of the wholesale digital euro with existing systems, it will also authorize research into how it integrates into T2, its real-time gross settlement system.

The research will also delve into the system’s cost analysis, settlement finality, and liquidity management.

Away from the technical aspects, the ECB also wants feedback on whether there’s a higher demand for atomic payments or instant settlement. The former involves simultaneous funds transfers between two parties in a single indivisible and irreversible transaction.

The ECB also seeks to address the viability and demand for a 24/7 settlement system and whether banks prefer connecting to the digital euro system directly or via intermediary distributed ledger technology (DLT) platforms.

The exploration of a wholesale CBDC continues globally as an alternative to a retail digital currency. Most central banks believe that a wholesale solution is less risky and has higher demand in the current market.

Recently, the Canton of Zurich in Switzerland issued a $113 million bond that settles using a wholesale CBDC issued by the country’s central bank. The bond will be listed on the SIX Digital Exchange and the conventional SIX Swiss Exchange and settle on December 1.