The European Central Bank (ECB) is expanding its efforts to enable banks and financial institutions to use blockchain-based systems for transactions with central bank money.
The European Central Bank (ECB) is actively developing a blockchain-based payment system for local financial institutions to settle transactions using central bank money, thus establishing an integrated European market for digital assets.
Although “central bank money” in this context refers to digital fiat money issued by the ECB for interbank transactions and settlements, this initiative could pave the way for a wholesale central bank digital currency (CBDC).
The project will be implemented in two phases. Initially, the ECB aims to create a blockchain platform that will be connected to the existing Target settlement system as soon as possible. TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the ECB’s real-time gross settlement (RTGS) system, used for processing large-value euro transactions between banks. It enables financial institutions to settle payments instantly and securely in central bank money. Instead of replacing TARGET, the plan is to integrate blockchain-based settlements with the TARGET Services solution, creating an “interoperability link.”
In the longer term, the central bank intends to develop a more integrated solution that would also facilitate foreign exchange transactions, though no specific timeline has been provided.
Between May and November 2024, the ECB tested this concept with 64 financial institutions, running over 50 experiments. Some trials involved real transactions, while others were simulations.
This initiative aligns with the ECB’s broader goal of creating a unified digital financial market in Europe, supporting innovation while maintaining trust in the financial system.
The initiative is similar to an effort by the Swiss National Bank, which launched a pilot program called Project Helvetia for a wholesale CBDC in December 2023. The Swiss project has already been used to settle multiple digital bond transactions and has now been extended until at least 2026.
In its current phase, real Swiss franc wholesale CBDC is being tested. The testing involves using tokenized central bank money for wholesale transactions, allowing participating banks to settle transactions with tokenized bonds on the SIX Digital Exchange (SDX), a regulated trading and settlement platform for tokenized assets. As the project proceeds further, additional financial institutions will be able to join. Furthermore, wholesale Swiss CBDC will be provided for a broader range of financial transactions.
Currently, over 130 countries and currency unions, representing approximately 98% of global GDP, are actively exploring Central Bank Digital Currencies (CBDCs). Among these, 66 countries are in advanced stages, including development and pilot programs, or have already launched their CBDCs. Almost all G20 countries are exploring a CBDC concept.
Notably, U.S. President Trump opposes the general CBDC trend. He has recently issued an executive order to ban Central Bank Digital Currencies (CBDCs) in the country. Moreover, Sen. Mike Lee (R-UT) reintroduced the No CBDC Act to make this ban permanent. The bill aims to prevent the Federal Reserve from creating a CBDC, citing concerns about privacy and government control over financial transactions. The bill argues that a CBDC could reduce financial freedom and privacy by merging “the power of state and money in a programmable way that would be easily abused”.
