ECB Prepares for Blockchain Settlement and Digital Euro Launch

According to Cointelegraph, the European Central Bank (ECB) is set to enable blockchain-based settlement in central bank money next year, while also gearing up for the issuance of a digital euro. ECB executive board member Piero Cipollone announced that the institution will facilitate transactions based on distributed ledger technology (DLT) in central bank money starting next year. Additionally, the ECB is preparing to issue the digital euro and integrate its system for international cross-border payments. The infrastructure supporting the digital euro will be accessible to other institutions for settling transactions with other central bank digital currencies (CBDCs). Cipollone emphasized that holding limits and the absence of interest are anticipated to maintain banks' roles in credit intermediation and monetary transmission. Assuming legislative approval by 2026, initial transactions with the digital euro could commence in 2027, with the CBDC ready for issuance by 2029. ECB President Christine Lagarde stated that the ECB's work is complete, and the design of the digital euro, including its privacy features, is now in the hands of EU lawmakers. Cipollone highlighted the necessity of a CBDC due to the EU's fragmented retail payment ecosystem and slow cross-border payments. He warned that without a CBDC, tokenization and DLT could lead to fragmentation and increased credit risk. A tokenized digital euro is expected to be available for the digital asset market to prevent such fragmentation. Cipollone acknowledged that stablecoins offer a solution to slow, costly cross-border payments but also pose risks to currencies and financial systems. He cautioned that the expansion of dollar-based stablecoins could undermine the euro's international role. The ECB's stance in 2023 is that the digital euro should not be programmable in a way that restricts spending, while still allowing conditional payments. The ECB noted that the offline model of the digital euro would offer privacy and data protection levels similar to cash. The offline digital euro model would ensure that not all transactions require third-party validation, meeting data protection requirements of proportionality and necessity. This variant would be stored locally, enabling device-to-device payments without needing an online ledger check. The ECB is considering using secure elements in mobile devices to store offline digital euros and is exploring smart cards. These recommendations contrast with the EU's recent privacy-related actions, as EU legislators must approve the CBDC blueprint. Last month, the European Commission's attempt to mandate private message scanning was unsuccessful. An internal EU document from November 27, published by Netzpolitik, indicates that member states view extensive data retention positively, discussing the logging of communication details and location data. The EU's AML Handbook, released in May, prohibits crypto-asset accounts that allow transaction anonymization and accounts using anonymity-enhancing coins from 2027. This followed the EU Innovation Hub's concerns about crypto privacy-preserving technologies in June 2024.