Yesterday the Spanish payment infrastructure company Iberpay published the findings of its central bank digital currency (CBDC) tests, which were conducted in collaboration with 16 banks in Spain, including Santander, Caixabank, BBVA and ING, with the Bank of Spain acting as an observer.
Iberpay’s proof of concept, named Smart Money, tested the different technical features of digital money as outlined in a European Central Bank (ECB) report.
This means that should the ECB decide to issue a digital euro, the Spanish financial sector will have already tested the suitability of certain features. These include token-based and account-based models, the viability of offline payments, and potential limits on holdings and use of digital euros.
The Smart Money report confirms that the issuance of a digital euro is viable for the Spanish financial sector, advocating strongly for a two-tier infrastructure model where the ECB issues digital euros and the financial sector is responsible for the distribution of the digital currency.
Combining tokens with account-based CBDC
In particular, the report explored issuing the digital euro through a combined model that supports both a token-based bearer CBDC and an account-based digital currency. Both cases use Iberpay’s Red-i interbank blockchain network. In the account-based scenario, it is a commercial bank that custodies the keys to the money. Whereas for tokens, the user controls the keys. This contrasts with experiments in other regions where tokens use blockchain, but account-based CBDC does not.
However, this novel approach carries some risks, which include token holders losing keys to their money. One suggestion was that a bank could store the keys in the token scenario and provide the user with a recovery mechanism. A key motivation provided for tokens was the ability to enable offline payments.
Iberpay is the main payments infrastructure provider in Spain. It currently manages the entire Spanish payment system, holding 98% of the Spanish market share across 17 banks. Furthermore, it plays a key role in the distribution of physical cash to financial entities in Spain.
It has conducted several trials using its Red-i interbank blockchain network, starting with a Proof of Concept in 2019. Late last year, it ran a large scale experiment that involved five major banks plus corporates and consumers who were using tokenized digital money. It also ran a trial with fund distribution platform Allfunds. Red-i is a private blockchain using the Hyperledger Besu flavor of Ethereum.
Discussions around the possible issuance of a digital euro have been ramping up both across the European continent and at an international level. Recent whitepapers published by the central banks of China and Canada illustrate the increasing momentum of CBDC development.
Meanwhile, the Bank of Korea is also making strides, having announced the winning provider for its CBDC blockchain simulations two days ago.