Italian banks explore dual models of wholesale CBDC

Italian banks explore dual models of wholesale CBDC

Italian banks explore dual models of wholesale CBDC As a tech journalist, Zul focuses on topics including cloud computing, cybersecurity, and disruptive technology in the enterprise industry. He has expertise in moderating webinars and presenting content on video, in addition to having a background in networking technology.

The Italian Banking Association’s trial of a wholesale Central Bank digital currency (wCBDC) has been declared a success.

The initiative, known as Project Leonidas, was part of the Bank of Italy’s sandbox program. The primary benefits identified were atomic transactions, enhanced transparency, and improved information traceability.

These tests were expected to take place by 2023, according to the Eurosystem announcement for the wholesale DLT trials with central bank money. Although many of the wCBDC trials focus on securities settlement, ABI aimed at settling interbank transactions.

Keep in mind that ABI has claimed some of the most advanced DLT banking implementations already. One of the first large-scale DLT banking initiatives is Project Spunta, an interbank reconciliation process involving almost 100 Italian banks that went live last year.

Interestingly, Spunta featured in one of the two Leonidas use cases. Spunta utilises DLT to automate interbank reconciliations, providing balances owed or due between banks. In the Leonidas trial, a wholesale CBDC was employed to automatically settle these interbank balances.

The second use case involved the automated settlement of Cash in Transit. This process, which typically involves moving physical cash between bank vaults and settling debts via wire transfers, was automated using the wCBDC in the trial.

The initiative investigated two alternative wCBDC models. The first, an integration model, involved issuing the wholesale CBDC on the same platform as other assets. This is similar to live pilots by the Swiss National Bank that used this settlement approach for Spunta interbank balances on the ABILabChain. However, ABI highlighted a possible hurdle in unifying two separate networks.

The Cash in Transit test used an interoperability model with two distinct DLTs: one for the wCBDC and one for asset ownership. This model would require careful coordination, and ABI emphasised the necessity of having a locking mechanism in place to ensure protocol synchronicity.

Led by ABI Lab, with additional support from ABI, R3, and NTT DATA, Project Leonidas is supported by Milano Hub, the innovation hub of the Bank of Italy for the development of digital skills in the financial market.

Among the project’s participants were 17 banks representing a broad spectrum, including major players such as Intesa Sanpaolo, UniCredit, and Banco BPM. The broad participation in this initiative highlights the commitment of the Italian banking sector to the exploration and implementation of innovative digital solutions.

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