EU’s CBDC Ambitions Take Shape as ECB Tests Blockchain Settlement

Key Takeaways

• The European Central Bank is developing a blockchain-based settlement system for financial institutions.
• The initiative could lead to a wholesale central bank digital currency.
• The move reflects a broader global trend of central banks exploring digital currencies.

The European Central Bank (ECB) is developing a blockchain-based payment system that would allow financial institutions to settle transactions using central bank money.

The initiative, which could lay the groundwork for a wholesale central bank digital currency (CBDC), is part of a broader push to integrate distributed ledger technology (DLT) into mainstream financial markets.

ECB Explores Blockchain Settlement System, Paving Way for Digital Euro

“This is an important contribution to enhancing European financial market efficiency through innovation,” said ECB Executive Board member Piero Cipollone.

The ECB’s project will unfold in two phases.

The first step involves creating a blockchain-linked settlement platform that interoperates with the existing TARGET Services , the Eurosystem’s real-time payment and securities settlement system.

The second phase aims to develop a more integrated, long-term solution that could extend to international operations, including foreign exchange settlements.

A timeline for implementation remains uncertain, with Cipollone stating that “a concrete time plan will be announced in due course.”

Central Banks Move Toward Digital Currencies

The ECB’s blockchain initiative aligns with a growing trend among central banks exploring digital currencies to modernize financial markets.

In December 2023, the Swiss National Bank (SNB) launched a pilot program for a wholesale CBDC, enabling digital bond settlements—a project recently extended until at least 2026.

Meanwhile, the Bank for International Settlements (BIS) has partnered with central banks in China, Hong Kong, Thailand, and the UAE on Project mBridge, a cross-border payments platform using wholesale CBDCs.

The Bank of England is also making strides in digital finance, focusing on its “Britcoin” initiative—a retail digital pound designed to complement physical cash.

Where Does the Digital Euro Stand?

The ECB’s digital euro project is moving through a structured multi-year development process.

The initiative aims to introduce a digital counterpart to cash, ensuring secure, cost-free payments across the euro area while reducing reliance on non-European payment providers.

Since launching its two-year preparation phase on Nov. 1, 2023, the ECB has been drafting a regulatory framework, researching technology providers, and refining key features, such as holding limits and offline functionality.

Depending on EU legislative developments, the Governing Council is expected to make a final decision on the project’s next steps by 2025.

Between May and October 2024, progress included completing an initial rulebook draft and advancing system design.

The ECB is now analyzing user preferences and exploring use cases like conditional payments. A comprehensive report and the final selection of infrastructure providers are expected by July 2025.