The European Central Bank (ECB) is developing a blockchain-based payment system that would allow financial institutions to settle transactions in central bank money, it announced on February 20.
This move is seen as a potential step toward developing a wholesale central bank digital currency (CBDC) and could accelerate the adoption of blockchain technology in global finance.
European Central Bank Moves Toward Blockchain-Powered Settlements
In a press release, the ECB wrote that its Governing Council has expanded its initiative to integrate distributed ledger technology (DLT) into financial transactions settled in central bank money.
The bank is adopting a two-track approach to facilitate this transition, emphasizing immediate implementation and long-term infrastructure development.
“This is an important contribution to enhancing European financial market efficiency through innovation,” said ECB Executive Board member Piero Cipollone.
The initiative’s first phase involves creating an interoperability link between blockchain-based transactions and the existing TARGET Services platform, ensuring safe and efficient settlements using central bank money. The ECB plans to release a detailed timeline for this implementation soon.
The second phase focuses on a more integrated long-term solution that will support a wider range of DLT-based transactions, including foreign exchange settlements and other international financial operations.
The ECB highlighted that while it remains committed to exploring new technologies, the integrity and efficiency of the financial system will remain a top priority.
The bank intends to work closely with public and private stakeholders to analyze the potential impact of blockchain and other innovations.
“We are embracing innovation without compromising on safety and stability. Our approach will pay due attention to the Eurosystem’s goal of achieving a more harmonized and integrated European financial ecosystem,” started Cipollone.
Lagarde Stands Firm Against Bitcoin Reserves as ECB Adopts Blockchain
As Europe explores these digital asset solutions, it faces competition from dollar-backed stablecoins.
In January, the ECB emphasized the need for blockchain-based payment innovations, particularly a digital euro. Despite adopting blockchain for settlements, the ECB remains cautious about broader crypto adoption.
President Christine Lagarde has dismissed Bitcoin as a treasury asset, citing its volatility and links to financial crimes.
This initiative aligns with the ECB’s push for a more integrated European digital asset market. It builds on research from May to November 2024, which involved 64 participants, including central banks, financial institutions, and blockchain platform operators.
These trials included real central bank settlements, paving the way for expansion.
The ECB’s Governing Council has also called for a digital capital markets union to boost European digital asset growth.
At a press conference, Lagarde reiterated her opposition to Bitcoin as an ECB reserve asset, stating:
“Reserves must be liquid, secure, and free from money laundering risks.”
Her comments followed Czech National Bank Governor Ales Michl’s suggestion that Bitcoin was being discussed as a diversification tool but had not been formally considered.
Lagarde firmly stated that no European central bank under ECB jurisdiction would hold Bitcoin in reserves.
This contrasts with Federal Reserve Chair Jerome Powell’s stance. Powell recently stated that U.S. banks could serve crypto clients if risks are managed properly and called for clearer crypto regulations, signaling a more flexible approach than Europe’s.
Looking forward, while Europe’s recognition of Bitcoin is still unclear, this new blockchain-based payment system might make them realize its technical rigidity, which could force them to adopt it.
Some European countries are already moving towards recognition, and they might later set out to compete with American nations.
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