The European Central Bank is expanding its efforts to establish a payments system built on blockchain technology, a move that could lead to Europe’s largest monetary policymaker issuing a central bank digital currency, or CBDC.
The digital payments infrastructure initiative, announced Thursday by the ECB, will roll out in two phases.
In the first stage, the eurozone’s monetary authority will develop and implement a payments platform for settlements in central bank money through an interoperability link with the Trans-European Automated Real-Time Gross Settlement Express Transfer system. TARGET is a payments settlement system that is responsible for facilitating the free flow of cash, collateral and securities across the eurozone.
In the second phase, the EU monetary authority will explore “a more integrated, long-term solution” for settlements of central bank money-denominated transactions on a blockchain.
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“This is an important contribution to enhancing European financial market efficiency through innovation,” Executive Board member Piero Cipollone said Thursday in a statement.
The ECB’s embrace of “innovative solutions” such as blockchain technology could shape the eurozone’s financial future by providing the infrastructure for its monetary authority to issue a digital euro—a centrally issued cryptocurrency that would enable Europeans to make fast and secure digital payments across continental Europe, the bank said.
The digital euro project is part of the ECB’s larger goal to achieve a single market for capital across Europe, according to the ECB website. Supporters of the project contend that the CBDC would bolster the eurozone’s economic strength, in addition to reinforcing the region’s autonomy and monetary sovereignty by reducing regional banks’ reliance on non-European payment service providers.
Road to the digital euro
The ECB began working on its plans to develop a digital euro in 2021, when it started an investigation into design and distribution models for the digital currency. Two years later, the Central Bank signaled it would take more concrete steps to realize its plans to issue a CBDC by establishing a list of priorities for the first phase of its digital euro project.
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Amid its project’s first phase, the ECB will continue ironing out the details of its blockchain-based payments system. The Central Bank will also engage with public and private stakeholders to tailor the new system to the needs of Europeans, it said in its statement. The timeline for its efforts on the project will be revealed “in due course,” the ECB added.
Edited by James Rubin
