With the year having dawned during which the green light could be given to a digital euro, Italian banks have stepped up their preparations.
The Associazione Bancaria Italiana (Italian Banking Association – ABI) has announced that its members have started ‘experimentation’ with the digital euro, with a focus on exploring the technical feasibility in Italy of a digital euro based on distributed ledger technology (DLT) and blockchain.
The European Central Bank (ECB) is aiming to decide by mid-2021 whether to progress plans for a digital euro and the past few months have seen various central banks that are members of the Eurosystem – which comprises the ECB and the central banks of the 19 European Union member states that use the euro – undertaking related research.
The Rome-headquartered ABI, which represents about 110 banking groups and individual banks, and its members are working with ABI Lab, an ABI-backed banking research and innovation centre, as well as various private-sector technical partners on their research. Their overall aim is to ‘proactively contribute to public debate and support banks operating in Italy as they prepare for the future’, they say.
The ABI-led research is divided into two areas: the first is looking at infrastructure and distribution to analyse the technical feasibility of launching the digital euro in Italy; the second is focusing on programmability ‘to experiment with use cases that can differentiate the central bank’s digital euro from the electronic payments already available’.
Italian banks made significant progress last year in developing a blockchain-based process for interbank reconciliations. An initial 32 banks joined an Italian banking sector blockchain, which is named ‘Spunta’, in March; 23 further banks joined in May; and, by mid-October, about 100 banks in total had signed up. The aim of Spunta is to standardise processes and eliminate the need for the potentially labour- and time-intensive inter-bank communications necessary if parties at either end of a transaction are not aligned: Spunta makes it possible to automatically detect non-matching transactions. In October the ABI said that ‘with Spunta’s blockchain, banks have a way for possible future developments’.
With its digital euro research, the ABI – which set up an expert group to explore digital money and crypto assets in 2019 – said that, in addition to exploring DLT, its project ‘focuses on enhancing the role of banks in the ECB’s digital euro environment’, as well as ‘exploring new value-added services that will become possible thanks to the currency’s programmability’.
An example of this could be that of state payments to citizens for specific items, which usually come in the form of non-transferable vouchers that confirm the right to use that money for a specific purpose (for example, buying school-books). If such subsidies or incentives were paid in digital euros, there would be no need to issue vouchers as the right to use the money, by that specific beneficiary and for that specific purpose, would be encoded in the digital instrument itself. The vendor (for example, a book store) would be able immediately to use the digital money, instead of having to redeem the vouchers through the government and convert them into cash (euros).
ECB consultation closes shortly
The ECB said three months ago that it would decide whether to progress what it described as the ‘digital euro project’ by mid-2021.
The Frankfurt-headquartered institution’s public consultation opened on 12 October 2020, ten days after it presented its ‘Report on a digital euro’. The consultation closes next week (12 January).
The chair of the ECB’s central bank digital currency (CBDC) taskforce is Fabio Panetta, a former senior deputy governor of Italy’s central bank, Banca d’Italia. Panetta, who is also a member of the ECB’s executive board, said in October that a digital euro “would support Europe’s drive towards continued innovation [and] would also contribute to its financial sovereignty and strengthen the international role of the euro.”
The ECB’s own experimentation has been at the Eurosystem level, with participant central banks including Banca d’Italia.
The central banks of France and Estonia are among the central banks to have committed to specific research. For example, the latter’s Eesti Pank is looking into the suitability of the KSI Blockchain, a core technology of e-government in Estonia, for supporting a central bank’s digital money infrastructure.
Banca d’Italia unveils ‘Milano Hub’
Banca d’Italia last month announced the launch of ‘Milano Hub’, an innovation centre in Milan ‘supporting the digital evolution of the Italian financial market and attracting talent and investment’.
Its objective includes supporting the adoption of digital technologies and ‘encourage their safe use with a view to preserving financial stability and avoiding the adoption of risky and potentially dangerous solutions’.
The northern city is Italy’s second-most populous city after Rome and was picked as the seat of the innovation hub owing to the significant number of banks, investors and researchers based there, ‘and for its great ability to engage in dialogue at European and international level’, the bank said.