The European Central Bank (ECB) is advancing its plans to create a wholesale central bank digital currency (CBDC) payment system aimed at settling transactions between financial institutions. This initiative, announced on February 20, marks a significant step towards modernizing Europe’s financial infrastructure.
The ECB’s wholesale CBDC system will be developed in two distinct phases. The first phase focuses on building the CBDC settlement platform itself. In the second phase, the platform will be integrated more deeply into existing ECB systems, including foreign currency exchange markets.
Piero Cipollone, the executive board member leading the wholesale CBDC initiative, emphasized the strategic importance of the project, stating that it aims to create “a more harmonized and integrated European financial ecosystem.”
ECB’s Broader CBDC Exploration
Since 2020, the European Central Bank has been exploring CBDCs across different dimensions, including a retail digital euro for consumers and a wholesale CBDC for cross-border settlements between central banks. Despite the technological advancements, CBDCs have faced criticism due to concerns over privacy, potential threats to individual autonomy from centralized state control, and questions about the underlying inflationary nature of digital fiat currencies.
In contrast to the ECB’s proactive stance, US President Donald Trump issued an executive order on January 23, prohibiting the development of a CBDC in the United States. The order also established a Working Group on Digital Assets to explore a potential digital asset reserve.
European Response to Global Digital Currency Trends
Following Trump’s executive order, ECB’s Cipollone reaffirmed his commitment to the digital euro project, arguing that the European Union needs a digital currency to compete with privately issued stablecoins. He expressed concerns about the growing popularity of cryptocurrencies and stablecoins potentially undermining traditional banking institutions.
Meanwhile, during a press conference on January 30, ECB President Christine Lagarde dismissed the possibility of adopting Bitcoin as a reserve asset for European banks, citing its volatility, illiquidity, and perceived security risks.
