ECB Plans Blockchain-Based Settlements as Digital Euro Advances

The European Central Bank is laying the groundwork for a major shift in how money moves across the eurozone, with plans to introduce blockchain-based settlements in central bank money as early as 2026.

The initiative is closely tied to preparations for a digital euro, though key decisions — particularly around privacy — remain in the hands of European lawmakers.

ECB executive board member Piero Cipollone said the central bank is preparing to enable settlements using distributed ledger technology directly in central bank money next year. At the same time, the institution is advancing technical readiness for the digital euro and exploring ways to connect its systems with international payment infrastructures to support cross-border transactions.

The ECB envisions the digital euro’s underlying infrastructure being usable beyond domestic payments. According to Cipollone, the system could eventually allow financial institutions to settle transactions involving other central bank digital currencies, creating a more integrated global payment environment. To limit disruption to the existing banking system, the ECB expects to impose holding caps and offer no interest on digital euro balances, measures designed to preserve banks’ role in lending and monetary transmission.

Legislative Timeline and Digital Euro Rollout

If EU lawmakers approve the legal framework in 2026, pilot transactions using the digital euro could begin the following year, with full issuance readiness targeted for 2029. ECB President Christine Lagarde has made clear that while the technical work is largely complete, final design choices — including privacy safeguards — will be determined through the legislative process.

Cipollone argued that a central bank digital currency is necessary to address structural weaknesses in Europe’s payments landscape. He pointed to fragmented retail systems and inefficient cross-border transfers as persistent problems. Without a digital euro, he warned, the growing use of tokenized assets and DLT-based settlement could increase fragmentation and credit risk across markets. A tokenized version of the digital euro, he suggested, could help anchor digital asset markets and reduce those risks.

While acknowledging that stablecoins can improve the speed and cost of cross-border payments, Cipollone cautioned that their widespread adoption could undermine monetary sovereignty. In particular, he warned that large-scale use of dollar-denominated stablecoins could weaken the euro’s international standing.

Privacy Design Meets Political Reality

Privacy remains one of the most contentious aspects of the digital euro project. The ECB has previously stated that the currency should not be programmable in a way that limits how individuals can spend it, though conditional payments would still be possible. For offline use, the central bank has said privacy protections should closely resemble those of physical cash.

Under the offline model, digital euros would be stored locally on a device, allowing peer-to-peer payments without real-time validation by a central ledger. This approach would mean that not every transaction is visible to a third party, aligning with data protection principles of proportionality and necessity. The ECB has discussed using secure elements in smartphones or dedicated smart cards to support this functionality.

However, the ECB’s privacy ambitions sit uneasily alongside broader regulatory trends in the European Union. Lawmakers who must approve the digital euro framework have recently backed proposals that expand data retention and surveillance powers. Efforts to mandate scanning of private communications have resurfaced, and internal EU documents suggest growing support among member states for extensive logging of communication metadata.

At the same time, the EU has tightened its stance on privacy in the crypto sector. New anti-money laundering rules restrict the use of anonymizing crypto accounts and will ban certain privacy-enhancing features and coins from 2027. These measures follow earlier criticism by EU institutions of technologies designed to preserve transactional anonymity.

As the ECB pushes forward with blockchain settlement and the digital euro, the contrast between its stated commitment to cash-like privacy and the EU’s broader regulatory direction is becoming increasingly stark. Whether the final version of the digital euro delivers on those privacy promises will depend less on central bankers and more on the political choices made in Brussels over the coming years.

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