speech demystifying wholesale central bank digital currency speech by fabio panetta, member of the executive board of the ecb, at the symposium on “ payments and securities settlement in europe – today and tomorrow ” hosted by the deutsche bundesbank frankfurt am main, 26 september 2022 let me first thank the deutsche bundesbank, and president nagel in particular, for inviting me to speak at today ’ s symposium. i would like to use this opportunity to discuss the implications of rapid technological change for our payment systems. i will focus not on people ’ s daily transactions, but on the infrastructure that underpins the smooth functioning and stability of our financial system. payments have long been an underestimated aspect of the monetary system, running reliably in the background and allowing the smooth implementation of policies in other areas, which took the spotlight. but a burst of creative digital innovation is now breaking this perception. this is most visible in the area of retail payments. the digitalisation of finance has broadened the available payment options. fintech start - ups have emerged. big techs have entered the payments market, capitalising on the networks they operate. the crypto universe has boomed and burst. these disruptions show that we need to preserve – at all times – an anchor of stability for the monetary and payments systems. safeguarding this anchor is what our digital euro project is about. we want to ensure that central bank money remains available for the public to use everywhere in the euro area for their day - to - day transactions – not just in its physical form, but in digital form too. but we are also actively working to modernise the payment infrastructure underpinning our financial system. technologies and preferences are changing, and preserving the role of central bank money as a safe asset at the heart of the system remains key. it strengthens the confidence in the smooth functioning of the financial system. the discussion on the wholesale version of central bank digital currencies – wholesale cbdc for short – is often prone to confusion, however. wholesale cbdc is generally presented as something new, made possible by the emergence of distributed ledger technology ( dlt ). [ 1 ] but wholesale cbdc has existed for decades. and it has provided efficient digital infrastructures for the settlement of transactions between banks in central bank money. the discussion about wholesale cbdc should therefore focus on how existing infrastructures have to be adapted as technologies and needs evolve. today i would like to demystify this concept of wholesale

bank money more efficient and secure. in particular, we are assessing the potential of dlt and the extent to which it could improve our services. market players that are active in payments and securities settlement, such as banks and financial market infrastructures, are already experimenting with dlt. our ongoing engagement with these stakeholders reveals that many of them expect dlt to experience a significant uptake in the financial industry. this would entail a shift from using centralised databases for transferring cash and assets to using decentralised networks instead. proponents of dlt highlight a range of benefits, such as the possibility of settling transactions instantly, around the clock, in a wider range of assets and with a broader spectrum of participants, potentially including non - financial corporations. users of dlt platforms could also program transactions to be settled automatically based on predefined conditions. stakeholders expect dlt to be used prominently for securities post - trade processes, where it could help to reduce costs, processing times and the need for reconciliation. some market players see the potential for efficiency gains by using dlt along the whole lifecycle of a security. and in the area of wholesale payments, market stakeholders see the potential for dlt to improve cross - border and cross - currency transactions, as it would overcome some of the frictions related to correspondent banking. but experiments conducted by both private firms and central banks must still prove that dlt can offer more benefits than existing technologies. indeed, the potential advantages of dlt can also be obtained in other ways. fast payment systems – such as the eurosystem ’ s tips – prove that 24 / 7 instant payments do not require dlt. and questions about who can access central bank money for wholesale transactions, or which types of assets should be settled against central bank money, are unrelated to the technology used. furthermore, automated and conditional payments can also be initiated through application programming interfaces ( apis ). notably, there are initiatives that seek to improve wholesale transactions using conventional technologies. for example, interlinking existing systems could improve the efficiency of cross - currency transactions. where similar objectives could be achieved both with and without dlt, the costs and merits of each option should be compared before moving in either direction. and we need to consider the potential drawbacks of dlt. for example, the consensus mechanisms that some dlt networks use to validate transactions are inefficient, both from an environmental point of view – as they require large amounts of energy – and in terms