Today the European Central Bank (ECB) announced plans to “explore new technologies” for wholesale central bank money settlement. The brief announcement avoids any mention of a wholesale central bank digital currency (CBDC). Instead, it refers to linkages between DLT infrastructures and the TARGET real time gross settlement (RTGS) systems for settlement. This approach is often referred to as a trigger payment.
While the ECB is forging ahead with a retail digital euro, there has been significant demand from banks for a wholesale CBDC for use in on-chain settlement, especially for DLT-based securities transactions. An on-chain digital currency would enable seamless delivery versus payment (DvP) transactions, although it’s also possible with a trigger solution.
To date, the Banque de France has been actively exploring a wholesale CBDC and one was used for settling recent bond transactions. The French central bank is also planning further work this year.
However, the ECB announcement sounds more like a trigger payment solution in which settlement for on-chain transactions links out to the central bank RTGS system for payment. Germany’s Bundesbank was one of the first to propose this as a solution, although DZ Bank told Ledger Insights a wholesale CBDC would be the ideal approach.
The Bank of Italy also favors trigger payments because it is concerned that a wholesale CBDC could result in pockets of cash stuck on different DLT platforms, creating a fragmentation that digital currencies aim to address. DekaBank’s SWIAT network is working on a trigger payment solution for tokenized securities settlement.
Last month the EU’s DLT Pilot Regime came into force, which allows the waiver of certain regulations to enable experimentation with DLT-based financial market infrastructures.
Meanwhile, the ECB is creating a market contact group to support the ECB’s research. It states the work will:
(i) “consolidate and further develop the ongoing work of Eurosystem central banks in this area, and
(ii) gain insight into how different solutions could facilitate interaction between TARGET services and DLT platforms.”
We’ve asked the ECB whether this will include a wholesale CBDC but have yet to receive a response. It would likely have been mentioned if that were the case.