The European Union (EU) is set to unveil its plans for a wholesale Central Bank Digital Currency (CBDC) within the next few weeks, according to François Villeroy de Galhau, the governor of France’s central bank. This initiative is aimed at modernizing how financial institutions settle securities and foreign exchange transactions, offering a glimpse into the EU’s ambitious efforts to embrace digital currencies.
The Eurosystem, which comprises central banks across the Eurozone, is forging ahead with its plans for a wholesale CBDC, marking significant progress compared to a more contentious digital euro proposal intended for general use by citizens. The rapid advancement of wholesale CBDC plans underscores the Eurosystem’s commitment to innovation in financial markets.
François Villeroy de Galhau, speaking at an event in Paris, revealed that the eligibility criteria and a call for interest will be published in the coming weeks. Furthermore, real transaction trials are expected to commence over the course of the next year. This move indicates a strategic shift toward exploring new technologies for the settlement of central bank money.
One key aspect of the wholesale CBDC proposal is the implementation of a permissioned network that utilizes smart contracts. This approach allows central banks to retain control over the money supply, which is crucial for managing inflation and ensuring financial stability. By adopting this framework, central banks can enhance their capacity to oversee and govern the financial landscape efficiently.
In addition to the permissioned network and smart contracts, central banks are also considering the adoption of “alternative protocols and blockchains” as well as the development of their proprietary Distributed Ledger for Securities Settlement System (DL3S). These endeavors underscore the Eurosystem’s commitment to embracing the potential of blockchain technology for streamlining financial processes.
A recent study conducted by traditional finance advocates has suggested that distributed ledger technology, when applied to financial markets, could yield substantial cost savings. The study estimates that these innovations could save the industry a remarkable $100 billion annually. These savings would result from improved collateral management and the automation of back-office processes.
EU wholesale CBDC progress outpaces retail counterpart
Notably, the wholesale CBDC plans have been advancing at a brisk pace, as evidenced by discussions held during industry meetings convened by the European Central Bank earlier this year. In contrast, the proposal for a digital euro for everyday citizens has encountered more significant political opposition and regulatory hurdles, leading to a slower development process.
The digital euro proposal faces significant challenges, primarily centered around concerns related to privacy and the potential impact on commercial banks. Lawmakers are grappling with the delicate balance between embracing digital currency innovation and safeguarding individual privacy rights. These debates have resulted in a more measured approach to the digital euro project.