The first wave of participants in the Eurosystem wholesale DLT settlement trials have started their onboarding process and will commence testing from May 13. The European Central Bank (ECB) announced the first participants at the start of the month. For the second wave, the application deadline is at the end of April, and participants are not restricted to banks. While most trials will relate to securities settlement, the ECB also shared details regarding tests for cross border payments and interbank settlement, which will be supported in the second wave.
During the latest meeting of the contract group, the ECB clarified that these two use cases will only be subject to ‘experiments’. Generally, the program supports ‘trials’ that use real central bank money, whereas ‘experiments’ are simulations.
Nonetheless, for the cross border or cross currency use cases, a non Eurozone central bank must be involved and connect to one of the interoperability solutions. The central banks of France, Germany and Italy developed platforms, with only the French one offering a wholesale central bank digital currency (CBDC).
Tokenized deposit testing is limited
With the increasing interest in tokenized deposits, one of the missing links is interbank settlement. That’s because when a deposit token is transferred from a customer of one bank to a customer at another, the money the token represents still needs to move between the banks. Hence commercial banks are interested in automating this interbank settlement process.
In the meeting notes, the ECB says its focus is on interbank payments, so the eligibility criteria exclude “bearer-like instruments”. This could mean it has no interest in stablecoin-like tokens backed by bank deposits. More likely, the central banks want to avoid touching the end user tokens themselves. In other words, there’s only a willingness to be involved in wholesale movements.
Here’s the wording: “Within Eurosystem exploratory work, the Eurosystem does not intend to support use cases involving CoBM tokens which can be transferred between clients of different commercial banks directly.”
However, it also states the “Eurosystem would consider the execution of trials only for use cases involving automated wholesale payments in euro CeBM only, without a CoBM leg.”
We’ve requested clarification and will update the article if appropriate.
