Today the Bank of Italy and the Bank of Korea announced a memorandum of understanding to share knowledge on technologies that support Real-Time Gross Settlement (RTGS) systems and central bank digital currency (CBDC).
When it comes to CBDC the two central banks have quite different paths. While the Bank of Korea has conducted retail CBDC trials, its current focus is the issuance of a wholesale CBDC to support tokenized bank deposits. Initial tokenized deposit trials will be for programmable payments including voucher style tests.
On the retail front, Italy is part of the European Central Bank’s (ECB) retail CBDC trials. With the ECB’s decision to move to the preparation phase, it looks likely that Europe will be one of the first major economies (after China) to launch a retail CBDC.
Italy’s wholesale DLT settlement solution
Italy’s most distinctive contribution is on the wholesale CBDC side where it proposes DLT interoperability using hash linked contracts. Europe is exploring various options for settling DLT-based security transactions with central bank money, and Italy’s approach is one of three options. The others are a wholesale CBDC from the Banque de France and a trigger solution from Germany.
The Italian approach is not a wholesale CBDC. It offers an API between a payment system and a securities DLT platform to enable atomic settlement of securities transactions. For this use case, there are quite strong arguments for its approach. Central banks don’t want to have to integrate with a plethora of different DLTs. Especially as the number of platforms proliferate. Instead, an API solution could achieve many of the aims, at the very least as an interim solution.
Additionally, the Bank of Italy has a DLT sandbox in which the ABI, the Italian banking association, is experimenting with using a wholesale CBDC for interbank settlement. The ABI already has a novel DLT solution for daily interbank reconciliations.