The European Central Bank (ECB) recently announced it was expanding its initiative to settle transactions between institutions with a wholesale central bank digital currency (CBDC) payment system.
The initiative will progress in two stages. First, the CBDC settlement platform will be developed, with a timeline to be announced soon. Second, the ECB will look at more integrated, long-term solutions, including international operations like foreign exchange settlement.
“This is an important contribution to enhancing European financial market efficiency through innovation,” said ECB Executive Board member Piero Cipollone, who oversees the initiative. “Our approach will pay due attention to the Eurosystem’s goal of achieving a more harmonized and integrated European financial ecosystem.”
He added that the ECB was “embracing innovation without compromising on safety and stability.”
For some time, the ECB has been exploring both retail digital euro and wholesale cross-border settlement between central banks. On Thursday, it reaffirmed its commitment to supporting “the use of innovative solutions in its market infrastructures” while maintaining the safety and efficiency of its current payment system, the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET).
The bank said it would “continue to further analyze new technologies and engage actively with public and private stakeholders.”
Development of digital euro
The digital euro “preparation phase” was launched on November 1, 2023, to lay the foundations for the potential issuance of a digital euro.
On June 24, 2024, the ECB published the first report on the preparation phase, which included updates on offline functionality, holding limits, and the tender process for digital euro component providers. It also addressed popular concerns around privacy, following on from an ECB blog post on June 13 on how to make the digital euro “truly private.”
In November 2024, the ECB called for partners to test conditional payments in a CBDC simulation to start in February 2025, as well as opening applications for partners willing to explore tokenization and other innovative use cases.
The ECB’s latest announcement of the next stage of its wholesale CBDC initiative stands in stark contrast to recent developments in the United States, where the concept of a digital dollar has met with far less government enthusiasm than its European counterpart.
US takes a different tact
Across the Atlantic, the Trump 2.0 administration has been putting its mark on the banking and digital asset landscape with a near-constant stream of executive orders and official appointments since January.
Prior to the election—this second time around—Donald Trump consistently made it clear that he was against any form of CBDC or digital dollar.
During a speech in Portsmouth, North Hampshire, last January, he promised “to protect Americans from government tyranny. As your president, I will never allow the creation of a central bank digital currency.”
He argued that “such a currency would give the federal government, our government, the absolute control over your money. They could take your money, and you wouldn’t even know it was gone. This would be a dangerous threat to freedom, and I will stop it from coming to America.”
In July, he doubled down on this sentiment, telling the BTC 2024 conference in Nashville that upon his re-elected he would:
“Immediately order the Treasury Department and other federal agencies to cease and desist all steps necessary because, you know, there’s a thing going on in your industry. They want to move the creation of a central bank digital currency. It’s over. Forget it. There will never be a CBDC while I’m president of the United States. And I will always defend the right to self-custody.”
However misguided Trump’s overblown fears of a CBDC may be, since being sworn into office, he has been quick to follow through on his various promises—or threats—and on January 23 signed an executive order prohibiting the development of a CBDC in the United States.
This anti-CBDC drive from the executive branch has been mirrored by the legislative branch. Most recently, on February 18, Rep. Andy Ogles (R-TN) introduced a bill (H.R. 1430) to attempt to make Trump’s effective ban on a CBDC permanent by amending the Federal Reserve Act of 1913 to limit the ability of Federal Reserve banks to issue central bank digital currency.
This follows several developments last year at both Federal and State levels along the same lines.
In May, the CBDC Anti-Surveillance State Act passed the House of Representatives. If enacted, it would—much like Rep. Ogles’s bill—amend the Federal Reserve Act to prohibit Federal Reserve banks “from offering certain products or services directly to an individual, to prohibit the use of central bank digital currency for monetary policy, and for other purposes.”
Meanwhile, several states decided to preempt Congress and the would-be second-term President by progressing their CBDC legislation.
In June, Louisiana Governor Jeff Landry signed a bill into law banning the state’s government from accepting or participating in a CBDC. A month later, North Carolina’s General Assembly followed suit by passing a bill restricting the state’s government from using and accepting a Federal Reserve-issued CBDC.
Whether U.S. CBDC enmity is justified or not, a pro-digital asset/anti-CBDC agenda has clearly been set in the Trump 2.0 era, and it stands as yet another differentiator and potential point of contention between the U.S. and the EU.
Watch: Finding ways to use CBDC outside of digital currencies
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