‘No.’
That was the clear answer from a key Eurosystem official in a recent OMFIF session to the question: ‘has the Genius Act changed your mind about the role of private money in wholesale capital markets?’
Although some central bankers have been panicking about their sector’s impotence or complacency in response to the expected dollar stablecoin boom, the Eurosystem has been stepping on the gas for its digital overhaul of wholesale euro settlement projects to embed public money at the heart of tokenisation. The same official expects, as a private opinion, that distributed ledger technology will underpin the majority of finance within 10 years.
Deutsche Bundesbank’s well-established ‘Trigger’ pilot, a ‘synchronisation’ system which settles between the existing real-time gross settlement platform, T2, and blockchain-based finance at regular intervals, is becoming a solution on behalf of the Eurosystem, known as Pontes, and will go live as a component of wholesale markets in Q3 2026. While that is still a year away, the Genius glut is not expected in practical terms until 2027, as stablecoin companies get ready to fulfil the obligation to buy a trust bank or set one up, and secure lawyers who can present their propositions to the Office of the Comptroller of the Currency. The Genius Act empowered the OCC to authorise stablecoins and while some observers expect to be overwhelmed, it is only just starting to understand the Act and its interpretation.
Project Appia
Some, including the Bank of England, hold the view that synchronising traditional settlement infrastructure with tokenised securities settlement will be sufficient. But the Eurosystem is preparing to go further. A medium-term Eurosystem project, Appia, is assessing a more ambitious undertaking to integrate public money into DLT finance on a live, token-based level – a true wholesale central bank digital currency.
This may take a while. The European Central Bank will publish a launch paper in mid-2026, but it will take years of industry collaboration before Appia is ready for the market to use. The faddish idea of a ‘regulated liability network’, where central banks, commercial banks and asset managers all sit on the same live permissioned network seems to be dying a quiet death for now.
So, while Europe’s future of wholesale settlement is mapped out, the picture in the US is far murkier. CBDCs in the US have become mired in populist ideology, not to mention assertive bank and crypto lobbying. The present administration has made it clear that it does not want the Federal Reserve System to work on a CBDC, throwing its weight behind a bill known as the Anti-CBDC Surveillance State Act.
Whether this ban also applies to wholesale CBDC is unclear, and many observers report the Fed quietly pressing on developing ways to provide wholesale settlement in digital money. Circumlocutions such as ‘tokenised reserves’ are now the order of the day. A synchronisation solution like Pontes should not fall into even the broadest definitions of CBDC, but that requires lawmakers to distinguish between an upgrade designed to facilitate settlement of tokenised assets with public money systems versus the use of novel digital money tokens. Although the shape of legislation could still change, President Donald Trump’s administration clearly prefers to support private money solutions.
Who wins the DLT race?
For capital markets, that goal represents a serious disruption of the status quo. A representative at a public blockchain company suggested to OMFIF that Europe might win the DLT-based finance race over the US on the basis that wholesale market participants will eventually want a public-money-based system, as is stipulated by the Bank for International Settlements’ Principles for Financial Market Infrastructure, rather than one merely backed by public debt. The representative added that the ECB is way ahead in that regard.
Europe still has its headaches. Sources close to the European Commission think it risks becoming a ‘flyover zone for DLT’ because of the deliberately onerous restrictions in MiCAR, compounded with an overly ‘Napoleonic’ application of it.
A patchwork of national regulators in Europe is still getting to grips with digital assets rules. A row erupted in a recent off-record OMFIF roundtable between a country’s paramount quasi-sovereign issuer and its finance regulator, who suggested it will abide by the swingeing capital weights recommended by BIS for digital assets on permissionless blockchains, and then was unable to advise which of the two incredibly punitive rates would apply to this issuer, whose bonds are otherwise rated ‘AAA’.
Since many of the Banque de France’s DL3S experiments take place on ethereum – a permissionless blockchain – the capital treatment of central bank money may also be the subject of the same confusion. There is no chance that digital assets can become mainstream in Europe while that framework prevails. The US, and many others, are expected to ignore the recommended risk weights.
Varied levels of readiness
Central banks cannot prepare for digitalisation of wholesale markets alone. OMFIF has heard different accounts of banks’ preparedness to make use of the Eurosystem’s DLT provisions, ranging from ‘not ready at all’, through to ‘needlessly duplicating work in their silos’ and on to ‘ready by the time Pontes goes live’.
A bigger ambiguity hangs over central securities depositories. Blockchain theory would suggest that additional clearing and settlement infrastructure is unnecessary, since blockchain is supposed to facilitate that on a peer-to-peer basis in short order, notwithstanding the need for a ramp off into fiat cash.
A Eurosystem official at a recent OMFIF session deflected a question about the CSD’s medium-term role to a representative of such an organisation, which suggested they may go onto provide the necessary interlinkages between various blockchains. Digital finance regulators are trying to work out how to avoid mandating fragmentation on the one hand to prevent, for example, public permissionless blockchain monopolies, and on the other habilitating monopolies to avoid the interoperability headaches. Worries about credit risk, counterparty risk and finality lurk in the background, meaning that CSDs may yet be needed, as new ones such as Ubyx emerge for these reasons.
The financial system as it stands is complex and replete with organisations who, policy-makers and disrupters alike seem to agree, are in places unduly clipping the coins passing through their hands. It may be that Europe’s attempts to digitalise the public-money anchored, bank-centric financial system will be the more stable route and spare the public purse the expense of a major financial accident from unforeseen flaws in the latest financial fashion.
While Europe is often mocked for its hair-trigger approach to regulation and the smothering effect this has on innovation, surety is highly prized by financial market participants. While there is no insurmountable reason that capital markets cannot run on private money, making this change would introduce new risks and raise new questions. In Europe, at least market participants know the form of money they’ll be using for the foreseeable future. Can anyone answer that question in the US?
John Orchard is Chairman and Lewis McLellan is Head of Content of the Digital Monetary Institute at OMFIF.
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