18 Italian Banks Collaborate for Wholesale CBDC

18 Italian Banks Collaborate for Wholesale CBDC

A group of banks under the umbrella of the Associazione Bancaria Italiana (ABI) is participating in a central bank digital currency (CBDC) pilot project in collaboration with the Bank of Italy.

The wholesale CBDC study, dubbed Project Leonidas, involves 18 commercial banks using blockchain technology. The CBDC initiative is one of several attempts by the Bank of Italy to explore new use cases for blockchain “for financial stability and consumer protection.”

In the latter scheme, commercial banks will use a common ledger for interbank payments, and experts predict private ledgers will be used instead of public versions. Participants are interested in reducing the bottleneck associated with interbank requests by conducting daily reconciliations.

The study bears similarities to Spunta, a blockchain-based study involving dozens of Italian financial institutions seeking to eliminate monthly reconciliations. It appears that Italian regulators are relying on atomic settlement or delivery versus payment (DvP) when issuing wholesale CBDC instead of trigger payments.

“So when we talk about DvP — because that’s what wholesale CBDC is all about — we’re talking about two legs: the asset leg and the cash leg should be one single leg, not two legs that are very tightly tied to each other,” Silvia Attanasio said. , Head of Innovation at ABI. “We want a unified cbcntve – atomic DvP.”

Italy’s stance has drawn the ire of critics as they argue that DvP can fragment liquidity while supporters point to a “waterfall feature” in the design of the European Union’s digital euro. The waterfall feature or overflow approach is designed to automatically move excess funds into accounts, a feature that can be applied to bulk ledgers.

Despite the Bank of Italy’s preference, the central bank said it remains open to exploring other alternatives. The Bank of Italy has previously relied on blockchain to eliminate fake bank guarantees and guarantees by enrolling 30 banks in a pilot program.

Growing preference for wholesale CBDCs

Wholesale CBDCs are becoming increasingly popular with central banks given their relative ease of use compared to retail versions with few moving parts.

US Federal Reserve Board Governor Michelle Bowman said that while a wholesale CBDC holds great promise, a retail iteration is “difficult to imagine.” Commercial banks are also voicing their disagreement with retail CBDCs over fears of bank disintermination affecting their ability to lend.

The general public remains skeptical of retail CBDCs due to concerns about privacy and government oversight. Experts say retail versions have a difficult task to compete with existing payment systems, citing the poor acceptance of Nigerian and Jamaican CBDCs.

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