A collaborative effort between the Associazione Bancaria Italiana (ABI) and the Bank of Italy brought together a group of banks in a central bank digital currency (CBDC) pilot program. It is referred to as Leonidas ProjectThis initiative involves 18 commercial banks taking advantage of blockchain technology. The primary goal is to explore applications of blockchain that enhance financial stability and protect consumers.
As part of this endeavor, commercial banks use a common ledger for interbank payments, preferring private ledgers rather than public ones. The goal is to streamline interbank inquiries and improve efficiency with daily reconciliations.
Interestingly, this study is similar put a markanother blockchain-based project implemented by Italian financial institutions, which sought to eliminate the need for monthly settlements.
Italian regulators appear to be leaning towards implementing atomic settlement or delivery against payment (DvP) for wholesale CBDC issuance, as opposed to direct payments. This choice reflects the desire for a more comprehensive and coherent approach.
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Study Italy for alternatives
Silvia Attanasio, Head of Innovation at ABI, stresses the importance of merging the asset and cash legs into one for the smooth operation of wholesale DvP-based CBDCs. However, critics have expressed concerns that this approach may fragment the liquidity, which has led to debates about its effectiveness.
Supporters of Italy’s position point to the “waterfall feature” in designing the EU’s digital euro. This feature automatically redistributes excess funds to the relevant accounts, demonstrating its applicability in bulk ledgers.
Although the Bank of Italy prefers the current approach, it maintains an open mind towards exploring alternative solutions.
In the past, the central bank has actively used blockchain technology to process fraudulent bank guarantees and guarantees, and successfully involved 30 banks in the pilot program.
CBDC wholesale is growing in popularity
Central banks are increasingly attracted to wholesale CBDCs due to their relatively straightforward implementation compared to the complex nature of retail CBDCs.
Michelle Bowman, Governor of the United States Federal Reserve, acknowledges the huge potential of digital currencies for wholesale digital currencies but highlights the huge challenge of envisioning a retail counterpart.
Commercial banks echo these concerns, worried about a diminished potential role and impact on lending in the retail bank’s retail currency environment.
The general public is suspicious of retail CBDCs due to concerns surrounding privacy and government surveillance.
Experts also point to the difficulties of retail versions competing against established payment systems, as evidenced by the disappointing adoption rates of central bank digital currencies in Nigeria and Jamaica.
Other central banks are turning to stimulus
Central banks around the world are grappling with the challenge of promoting the adoption of a central bank digital currency amidst a variety of payment alternatives.
Related reading: CBDC Stealth Mode: Unraveling the US CBD Privacy Mystery
In response, some central banks, such as the People’s Bank of China (PBoC), have resorted to incentives to entice users and compete with established payment platforms such as Alipay and WeChat Pay.
To drive digital yuan adoption, the People’s Bank of China (PBoC) has taken measures such as offering free digital yuan worth $21 million to Chinese citizens on approved platforms. Additionally, they have integrated the popular “red envelope” feature as part of the Chinese New Year celebrations, incentivizing users to transact with the digital currency.
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