ECB plans blockchain settlement in central bank money next year, advancing digital euro preparations and cross-border payment integration under EU oversight.
The European Central Bank plans a major shift in payment infrastructure starting next year. It will allow blockchain-based settlement in central bank money. Moreover, officials affirmed preparations for a digital euro. These steps are a response to the growing urgency to modernise money for a digital economy.
ECB Prepares Blockchain Settlement and Digital Euro Framework
ECB executive board member Piero Cipollone said distributed ledger transactions will settle central bank money next year. He said the institution is preparing systems for a digital euro. Additionally, the ECB is aiming to create links between payment infrastructures across the international level. Therefore, cross-border settlement efficiency is still a priority.
Digital payments become the norm in everyday transactions in Europe. Meanwhile, payments and finance continue to be entered by technology firms. As a result, traditional financial institutions have become technology-driven entities. Central banks are now under similar pressure to change.
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The ECB argues money needs to be stable and trusted in the digital environment. Otherwise, central bank money might lose relevance. As a result, this would increase the risk of financial stability. Cipollone said central banks have to shape change, not follow it.
Within the euro area, uniformity is important. One euro must be worth one euro, no matter what form it is in. Therefore, the central bank leadership provides monetary consistency. This precept lies behind the ECB’s overall strategy.
The Eurosystem has already developed large financial infrastructure. These are T2 for large payments and TIPS for instant payments. Securities and collateral systems also have good functionality. Together, they support integrated euro area markets.
However, officials say more must be done. Tokenisation and blockchain technologies are changing capital markets. Without central bank money these systems are based on fragmentated private settlement assets. That reliance brings in credit risk along with fragmentation.
Digital Euro and Tokenised Money Address Structural Risks
Cipollone cited three major challenges facing the euro area. First, retail payments are still said to be fragmented despite the integration of SEPA. Europe still relies heavily on non-European card providers. This dependence poses a threat to strategic autonomy.
Second, the nature of money continues changing rapidly. Tokenised markets promise efficiency gains. Yet private settlement assets do not have the stability of central bank money. Therefore, monetary sovereignty is free to weaken without intervention.
Third, cross-border payments are still slow and expensive. Stablecoins offer alternatives, but risks. Dollar-based dominance could undermine the international role of euro. Hence, ECB officials see an urgency.
The ECB strategy is based upon three pillars. First, it is a preparation of a digital euro as a cash equivalent. Second, it allows DLT settlement in central bank money. Third, it makes the fast payment systems interlinked globally.
Retail payments in the euro area would be served by the digital euro. This would work both online and offline. Privacy safeguards would be applicable subject to the EU’s legislative approval. Importantly, the banks would distribute the digital euro.
Officials stressed banks have their place. The digital euro would not pay interest. Holding limits would avoid destabilising outflows. These are safeguards for credit intermediation.
For wholesale markets, the ECB intends tokenised central bank money. Projects Pontes and Appia will support DLT settlement. These are food for thought in the goal to achieve a union of digital capital markets.
In all, ECB officials believe there is more risk in inaction. Technological disruption will continue whether or not. Therefore, central bank money needs to evolve. Europe does not want to import money but to help shape its future.