ECB sets 2026 DLT settlement, digital euro eyes privacy
The European Central Bank plans to permit blockchain-based settlement in central bank money as early as next year, aligning with preparations for a potential digital euro, while final decisions on privacy protections will be determined by EU legislators. The initiative includes enabling distributed ledger technology (DLT) transactions starting in 2026.
ECB Executive Board member Piero Cipollone said on Friday that the bank will make it possible to settle DLT-based transactions in central bank money next year. He added that the ECB is preparing to issue a digital euro and to link its infrastructure internationally to facilitate cross-border payments. The same underlying infrastructure would be made available to other institutions for settlement with other central bank digital currencies (CBDCs). Cipollone noted that holding limits and the absence of interest on balances are intended to maintain banks’ function in credit intermediation and monetary transmission.
Subject to legislative approval in 2026, initial digital euro transactions could begin in 2027, with full readiness to issue the CBDC by 2029. In remarks on Thursday, ECB President Christine Lagarde said the ECB’s work on the design is complete and that decisions on key features, including privacy, rest with EU lawmakers. Cipollone said the digital euro would be accessible both online and offline to enhance resilience and support privacy.
Cipollone argued that a CBDC is needed to address fragmentation in the EU retail payments market and slow cross-border transfers. He warned that without a CBDC, tokenization and wider use of DLT could increase fragmentation and credit risks. A tokenized version of the digital euro is also planned for use in digital asset markets to help mitigate those risks.
He acknowledged that stablecoins can improve cross-border payment speed and cost but cautioned that they may pose risks to currencies and financial systems. Cipollone added that broader adoption of dollar-denominated stablecoins could weaken the euro’s international role.
An offline-capable CBDC with cash-like privacy
In a 2023 opinion, the ECB said the digital euro should not be programmable in ways that restrict where or on what it can be spent, while still supporting conditional payments. The ECB also indicated that the proposed privacy and data protection for the offline model should be comparable to cash.
For the offline option, not all transactions would require validation by a third party, which the ECB said meets proportionality and necessity standards for data protection. The offline variant would be stored locally and enable device-to-device payments without checking an online ledger. The ECB is assessing the use of secure elements in mobile devices for storage and is also considering smart cards.
EU privacy debate and data retention initiatives
Those proposals diverge from several recent EU measures related to surveillance and data access, which must be reconciled with any CBDC framework approved by legislators. Last month, the European Commission again attempted, unsuccessfully, to mandate scanning of private messages.
An internal EU document dated Nov. 27 and published earlier this month by German-language outlet Netzpolitik indicates that member states generally support broad data retention. The document discusses logging details of “who communicated with whom, when, where and how,” and references “location data” 11 times.
The EU’s AML Handbook, released in May, prohibits “crypto-asset accounts allowing anonymisation of transactions,” and bars “accounts using anonymity-enhancing coins” starting in 2027. This followed concerns raised by the EU Innovation Hub in June 2024 regarding privacy-preserving technologies in crypto.
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