Wholesale digital euro launches on ECB platform for bank payments

The digital euro entered wholesale financial markets on Monday when the European Central Bank launched Pontes, an ECB-operated platform for tokenised payments between banks. Since 9.15am on Monday, the platform has allowed banks to settle transactions recorded on privately run distributed ledgers using central bank money. Tokenisation involves creating digital versions of assets and money that can be exchanged online on blockchain-based systems. The ECB is seeking to establish central bank money as an alternative to privately issued stablecoins for settling tokenised transactions. Pontes links private distributed-ledger operators with lenders across the 21-country Eurozone through the ECB's Target2 system, which clears payments between European banks. The platform started with 13 lenders, including Deutsche Bank, Santander and Société Générale, and four distributed-ledger operators, including Deutsche Börse-owned Clearstream and Lithuanian fintech Axiology. More participants are expected to be added over the coming months, according to a person familiar with the project. Trading hours will initially be restricted to between 8am and 4pm central European time. The system is planned to operate around the clock 365 days a year by 2028. The ECB began work on the wholesale digital euro in 2024. ECB executive board member Piero Cipollone said Pontes was bringing the stability and trust of central bank money to the European tokenised finance ecosystem. The ECB is also developing a retail digital euro for transactions between individuals and merchants. The ECB says both versions are needed to protect the euro area's freedom and sovereignty. ECB economists have warned that Europe could lose control over its monetary policy if US dollar-denominated stablecoins become popular for settling digital transactions. Most stablecoin transactions globally use dollar-denominated tokens, and the dominance of US payments companies Visa, Mastercard and PayPal creates geopolitical vulnerabilities, according to the article. The retail digital euro still depends on a change in EU law, while the ECB can launch the wholesale version under existing rules. The legal changes are under discussion among the European Parliament, the Council of the European Union and the European Commission, and a political agreement is expected by the end of the year. The ECB wants to provide households and merchants with a digital equivalent of cash by 2029, with a retail technology beta test scheduled for 2027. Retail banks regard the retail digital euro with scepticism, while BNP chief economist Isabelle Mateos y Lago argued earlier this year that Europe urgently needs a wholesale digital currency. The ECB will be one of Pontes' first users and said on Monday that it would invest a small portion of its own funds in tokenised securities. A person familiar with the details said this would not involve buying cryptocurrencies such as bitcoin or private-sector stablecoins such as Tether. Instead, the ECB would acquire tokenised securities such as bonds in its non-monetary policy portfolio to gain practical experience as a user of distributed-ledger technology.