European Central Bank on the Path to a Blockchain-Based Payment System

The European Central Bank is intensifying its efforts to establish a payment system built on blockchain technology. This move could lead to the largest European monetary policy maker issuing a central bank digital currency or CBDC.

The digital payment infrastructure initiative, announced by the ECB on Thursday, will be launched in two phases.

In the first phase, the eurozone monetary authority will develop and implement a payment platform for settlements in central bank money through an interoperable link with the trans-European automated gross settlement system for real-time express transfers. TARGET is the payment settlement system responsible for enabling 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 settling central bank transactions in money on the blockchain.

– This is an important contribution to improving the efficiency of the European financial market through innovation – said Executive Board member Piero Cipollone in a statement on Thursday.

The ECB’s acceptance of ‘innovative solutions’ such as blockchain technology could shape the financial future of the eurozone by providing 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 stated.

The digital euro project is part of a broader goal of the ECB to achieve a single capital market across Europe, according to the ECB’s website. Proponents of the project argue that the CBDC would strengthen the economic power of the eurozone, while enhancing the region’s autonomy and monetary sovereignty by reducing regional banks’ reliance on non-euro payment service providers.

The Path to the Digital Euro

The ECB began working on its plans to develop a digital euro in 2021, when it launched an investigation into the design and distribution models of the digital currency. Two years later, the Central Bank signaled that it would take more concrete steps to realize its plans for issuing a CBDC by establishing a priority list for the first phase of its digital euro project.

Amid the first phase of its project, the ECB will continue to refine the details of its blockchain-based payment system. The central bank will also collaborate with public and private stakeholders to tailor the new system to the needs of Europeans, the statement said. The timeline for the project will be revealed ‘in due course,’ the ECB added.