ECB Targets On-Chain Settlements in 2026 as EU Debates Digital Euro Privacy

• ECB plans blockchain settlement in central bank money and advances digital euro rollout.
• Digital euro design and privacy safeguards depend on EU lawmakers’ approval.
• Stablecoins and tokenization are seen as risks to the euro without public CBDC.

The European central bank (ECB) is intensifying the process of modernizing a Eurozone payment system. It will fund blockchain-based central bank money settlement in the coming year. Meanwhile, it is becoming more toward issuing a digital euro. The project has the potential to transform payments in Europe, but the privacy regulations will be based on EU legislators’ choices.

Piero Cipollone, ECB Executive Board member, has affirmed the timeline in a public statement. He claimed that the bank will enable transactions based on distributed ledger technology to be settled in central bank money. This move would introduce blockchain systems to regulated financial markets. It would also introduce a change in ECB support of digital infrastructure.

Cipollone added that the bank is already preparing the issuance of a digital euro. The central bank would like the system to operate across national borders. It will connect the digital euro to other global payment networks. It aims to transform cross-border transfers in a quicker and easier way.

The digital euro would not be serving the consumers individually. Financial institutions would also have access to its underlying system. It could be used by banks and payment providers to pay with other central bank digital currencies. This would facilitate better communication between the various CBDCs.

ECB Ties Digital Euro Rollout to Lawmaker Approval

The ECB does not want to weaken the banking sector. That is why it intends to restrict the amount of digital euro that users can carry. The currency will also be interest-free. Cipollone explained that such features will assist in safeguarding bank lending and the monetary transmission of policies.

The implementation will be based on political acceptance. With the appropriate legislation enacted by EU lawmakers in 2026, preliminary transactions may start in 2027. By 2029, the ECB believes that it would be technically prepared to issue the digital euro. Officials claim that without legal backing, the central bank is powerless.

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ECB president Christine Lagarde reiterated the same message this week. She reported that the ECB has done most of its technical work. The final design would be decided by the legislators, Lagarde stressed. That involves the degree of privacy integrated into the digital euro.

Cipollone stated that a digital euro is required to address long-running payment problems. The retail payments in Europe are still borderly fragmented. International transfers can be very slow and costly. He proposed that a public digital currency could reduce these frictions.

He also cautioned about the risks associated with the tokenization. In the absence of a shared settlement resource, blockchain finance may divide further. This might raise credit and liquidity risks. A tokenized digital euro would provide a stabilizer.

Stablecoins already enhance cross-border payment. Cipollone admitted that they were efficient and fast. Nonetheless, he cautioned that they are also threatening to currencies and financial stability. These risks increase with higher adoption.

Privacy and Stablecoin Risks Shape Digital Euro Strategy

The ECB is concerned with dollar-backed stablecoins. Cipollone said that their growth might harm the global standing of the euro. This risk reinforces the argument for a European substitute. The ECB considers the digital euro a strategic reaction.

One of the most sensitive issues is privacy. In a 2023 view, the ECB had argued against restrictions on spending built into the currency. It favored conditional payments and opposed restrictions to user choice. The objective is to ensure that the digital euro remains close with cash.

The ECB has also highlighted the importance of privacy in offline payments. In the offline form of digital euros, the third-party validation would not be necessary at all times. Users would be able to transfer monies between devices. This arrangement is a reflection of the current workings of cash.

Balances would be stored on devices as well as offline. ECB has considered the option of utilizing secure elements in smartphones. It too has addressed Smart dedicated cards. These devices would enable the making of payments without regular internet monitoring.

These objectives of privacy are under political pressure. Policymakers of the EU are still arguing about data retention and surveillance. According to a Netzpolitik story on an internal EU document, there is an extension of data logging in support of some states. Such a discussion might impact the finished digital euro.

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