The European Central Bank (ECB) is working to establish a blockchain-based payment system that will allow financial institutions to settle transactions using central bank money, Bloomberg News reported on Feb. 20.
ECB executive board member Piero Cipollone said the project is a step toward improving financial market efficiency through innovation.
Phased approach
The project will be rolled out in two phases. Initially, a blockchain platform will be connected to the existing Target settlement system, which operates with central bank money.
Meanwhile, the second phase will focus on building a fully integrated solution, including foreign exchange transactions.
The ECB has not provided a timeline for implementation but has indicated that the initiative could lay the groundwork for a wholesale central bank digital currency (CBDC) by introducing central bank money into a blockchain-based environment.
Switzerland has taken a similar approach. In December 2023, the Swiss National Bank launched a pilot wholesale CBDC to facilitate the settlement of digital bonds. Initially planned as a short-term trial, the project has been extended until at least 2026 to further assess its impact on financial markets.
Countering stablecoins’ influence
Cipollone recently emphasized the need to accelerate the launch of a digital euro, citing concerns over the growing influence of dollar-backed stablecoins. He urged the ECB to accelerate the deployment of the digital euro as a countermeasure to the growing adoption of private stablecoins.
His remarks followed an executive order signed by President Donald Trump on Jan. 23 promoting the expansion of stablecoins while prohibiting federal agencies from advancing a CBDC.
Despite regulatory support, eurozone banks have expressed concerns about potential deposit losses. To address this, the ECB has proposed capping digital euro holdings and ensuring they remain non-interest-bearing.Â
The project’s advancement depends on European lawmakers passing the necessary legislation. A prototype development phase will begin this year.
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