Bloomberg News, on February 20, reported that the European Central Bank is developing a payment system based on blockchain technology. This will enable financial institutions to settle their transactions with central bank currency.
Piero Cipollone, a member of the ECB’s executive board, said that this project was aimed at improving market efficiency by embracing innovation.
The phased approach
Two phases will see the project implemented. The blockchain platform is initially connected with the Target settlement system which uses money from central banks.
In the meantime, the second stage will concentrate on developing a solution fully integrated, which includes transactions in foreign currency.
The ECB did not provide a timetable for its implementation, but it has stated that this initiative may lay the foundation for a central bank digital money (CBDC), by introducing central banks into a Blockchain-based environment.
Switzerland also adopted a comparable approach. Swiss National Bank has launched in December 2023 a pilot CBDC wholesale to ease the settlement of digital bond. This project, originally intended as a temporary trial, has been extended to at least 2026 so that its effects on the financial markets can be assessed.
Countering stablecoins’ influence
Cipollone Recent emphasized In response to concerns about the growth of stablecoins with dollar backing, the ECB should accelerate the release of a digital Euro. He urged ECB officials to deploy the digital Euro faster as a response to private stablecoin adoption.
The remarks that followed were Executive Order The President Donald Trump signed a letter on the 23rd of January promoting stablecoins, while prohibiting any federal agency from pushing a CBDC.
Banks in the eurozone have raised concerns over possible losses on deposits despite their regulatory backing. To address this, the ECB has proposed capping digital euro holdings and ensuring they remain non-interest-bearing.
It is up to European legislators whether they pass the required legislation. This year, the prototype phase of development will start.
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