The European Central Bank’s Blockchain-Based Payment System
The European Central Bank (ECB) is currently in the process of developing a blockchain-based payment system that will revolutionize the way financial institutions settle transactions using central bank money, according to a report by Bloomberg News.
Phased Approach for Implementation
- The project will be implemented in two phases:
- Initially, a blockchain platform will be connected to the existing Target settlement system that operates with central bank money.
- The second phase will focus on creating a fully integrated solution, which will include foreign exchange transactions.
The ECB has not provided a specific timeline for the implementation of this project. However, it has hinted that this initiative could pave the way for a wholesale central bank digital currency (CBDC) by integrating central bank money into a blockchain-based environment.
Switzerland has taken a similar approach, with the Swiss National Bank launching a pilot wholesale CBDC in December 2023 to facilitate the settlement of digital bonds. This pilot project has been extended until at least 2026 to further evaluate its impact on financial markets.
Countering Stablecoins’ Influence
ECB executive board member Piero Cipollone has stressed the importance of expediting the launch of a digital euro to counter the rising influence of dollar-backed stablecoins. This move comes as a response to an executive order signed by President Donald Trump on Jan. 23, which promotes the expansion of stablecoins while restricting federal agencies from advancing a CBDC.
Despite regulatory backing, eurozone banks have expressed concerns about potential deposit losses due to the digital euro. To address this, the ECB has proposed capping digital euro holdings and ensuring they do not accrue interest.
The progression of this project is contingent on European lawmakers passing the necessary legislation, with a prototype development phase set to commence this year.
