Silvia Attanasio, is the Head of Innovation at ABI (Italian Banking Association). Previously to that role she worked for 17 years at ABI Labs, the centre of research and innovation at ABI. Previously Silvia introduced us to Spunta, the private permissioned DLT project for interbank reconciliation. In this podcast she shares with us some of the work that ABI and its consortium of Italian Banks are looking to offer to the European Central Bank in its development of its CBDC called the Digital Euro.
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Silvia featured on Insureblocks on the 22nd March 2020 where she introduced Spunta, a private permissioned DLT project for interbank reconciliation.
The new application streamlines and automates the reconciliation of transactions, improving governance of the overall Spunta process, a nostro vostro account, and moves from a slow error prone settlement system to a real time management of the reconciliation process.
Today after three waves of migration, nearly 100 banks are in production operating the Spunta DLT daily. Each bank has its own DLT node, geographically distributed in nine different cities across the country processing 322 million transactions.
The term CBDC denotes money that a central bank could create in digital form and make available to the general public. It would not be another currency, it will be another form of the existing currency.
In January 2021, The Bank of International Settlement ran an updated survey with central banks around world. In it they found that 86% of central banks are engaged in CBDC work. P from 80% in May 2020. Central banks representing 1/5 of the world’s population are likely to issue a retail CBDC in the next three years.
The goal of improving financial inclusion is much more pronounced in emerging economies, while it is less present in advanced economies like European Union, where the main objectives are the security and efficiency of the payment system.
The European Central Bank’s CBDC is called the Digital Euro. The ECV see’s three main benefits in exploring the possibility of launching a Digital Euro:
There are a few more benefits from the bank’s perspective that Silvia highlighted such as the possibility of enabling use cases based on the programmability of the currency, and the possible application to transactions from counterparties as a machine.
Fabio Panetta, Member of the Executive Board of the ECB stated that in a blog post: “Central to all our discussions is the fact that a digital euro would be a means of payment that would complement cash, not replace it. Abolishing cash is not on the table, as ECB President Christine Lagarde and other members of the ECB Board and Governing Council have stated publicly on several occasions.”
With regards to anonymity. If the identity of Digital Euro users were not verified at any stage of a transaction then they would be anonymous and AML / CFT mechanisms (anti-money laundering / combating the financing of terrorism) wouldn’t be effective. Silvia believes that this would require at least a light identity verification when opening a digital wallet. However as the implementation of a Digital Euro may happen on a DLT platform it is possible to ensure that the information related to the individual is exchanged on a need to know basis. So only the two banks involved in a transaction will have access to the information.
The Italian banks experience in the Spunta project gave them the necessary competences and understanding of what could be possible with CBDCs. ABI has prepared 10 considerations for a CBDC which can be summarised into three main concepts:
ABI’s prepared 10 considerations for a CBDC (source ABI):
ABI gained three key findings from their work with Spunta:
In their view the design of a Digital Euro requires careful reflection on the adequacy of traditional governance models that have been applied for infrastructure projects led by the ECB and the Euro.
The digital euro will deeply affect customers, payments, services, processes, and ICT solutions of the payment service providers in Europe.
From this perspective, the banking sector and other providers of retail payments are in the best position to assess potential effects of architectural options on the end users and to quickly evaluate the feasibility on actual payment services. The Italian banking sector would like to share their experience and expertise gained over the last few years with Spunta in particular the infrastructure itself and the distributed governance aspects that proved to be key determinants on the project success. They believe that the set of experiments based on coopetition principles brings great benefit to the market, particularly in the context of distributed paradigms.
ABI, along with 18 banks, has spent the last two months developing four possible uses cases to understand the impact of a programmable digital Euro:
Performance of multiple payments expected at the time of purchasing a property through the granting of a mortgage. The execution of payments (to the seller, to the agency, to the notary, to the seller’s bank to pay off a previous mortgage, etc.) through the enabled functionality of making a single transaction divided into multiple payments will simplify and automate the management of transactions towards the various actors involved in the process of buying and selling a property. The distinctive feature of this use case lies in the maximum exploitation of the digital euro as a central bank liability as well as in the combination of two feature of programmability the execution of multiple payments in a single transaction and the possibility of limiting the expandability.
The process of returning a purchase made through an e-commerce. Thanks to the implementation in a distributed ledger of instructions that are binding and executable only on the occurrence of predetermined conditions (so-called Smart contract), it is possible to make the process of returning purchased goods more reliable and consumer-friendly. At the time of delivery of the returned goods by the client, the sum of money can be blocked and kept in an escrow account, which only releases it after confirmation or rejection of the return.
Culture Pass is related to the bonuses provided by the Government to support some kind of expenses: the development of this case will lead to the creation of specific smart contracts linked to the Digital Euro, which will allow to encode the logic and purpose of expendability of these tokens, making it possible to use the bonus only in compliance with the terms and conditions indicated by the issuing entity. In addition, a simplified prototype linked to the management of sums to minors (pocket money) will be developed, in order to limit the usability only to the categories of purchases allowed by law.
Execution of payments for products on consignment. The case provides for the transparent management of the execution of payments for products on consignment in the so-called short supply chains, using the functionality of “split transaction” (atomic and instantaneous transactions). At the time of purchase, a single transaction is divided so that payment is directed to the seller of the product and to the various producers making up the supply chain.
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This episode is brought to you by our friends and sponsors at R3, one of the pioneers in the Spunta collaboration to provide a faster, more efficient and more transparent way of reconciling interbank transactions.
Visit R3.com to find out how Corda, R3’s enterprise blockchain platform has been adopted as the platform of choice by Spunta and for other innovative blockchain projects across multiple industries including insurance, trade finance, supply chain and capital markets.
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