The state savings bank Spuerkeess, which in participating in the second wave of European Central Bank’s experimental and knowledge-gathering initiative to use distributed ledger technology (DLT) for wholesale settlements using the central bank digital currency (CBDC)--the digital euro--in a real world live setup. Spuerkeess is participating in the of the European Central Bank trails, running from July to November 2024, and it is the first time we are involved in such a project with other central banks. Christophe Medinger, deputy head of business unit digitalisation at Spuerkeess, told Delano what is at stake and what it means for this new technology for the financial sector.
Kangkan Halder: What were your main motivations for participating in the ECB’s wholesale settlements trials and experiments using DLT?
Christophe Medinger: At Spuerkeess, we are convinced that DLT technology for the wholesale market holds immense potential for process optimization. This, in turn, allows us to deliver better customer service by offering improved and more cost-effective services.
What is your main take-aways with the DLT-based settlements compared to the traditional digital approach?
It is still early, and the process requires adaptation from all participants in the system to realize the promised benefits. Our project with the ECB demonstrated that there are ways to gradually introduce the advantages of DLT into this process without disrupting the existing systems.
The ‘digital euro’ for retail clients represents a necessary evolution of our banking services.
Were there any challenges you faced as 'market participants' during this process?
The main challenge was convincing all stakeholders to invest time and resources in a trial project. To successfully launch a real transaction on a DLT platform, you need buy-in from the central bank, a DLT platform provider, an issuer, a leader, an investor and a depositary.
We successfully connected to and interacted with the solution provided by Deutsche Bank, known as the ‘trigger solution.’ This solution enables the management of cash flows between the traditional settlement system, Target 2 and a DLT platform.
What is Spuerkeess’s outlook on the digital euro, the Eurozone’s central bank digital currency?
We believe there is ample room for digital innovation. The ‘digital euro’ for retail clients represents a necessary evolution of our banking services, providing clients with a secure and convenient alternative to cash. For wholesale central bank money, the trial demonstrated a potential transitional system that could lead to fully digital and automated settlement of wholesale transactions.
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Do you think experiences from ECB’s wholesale CBDC (wCBDC) settlements will help banks better integrate the digital euro in the future? What are the main concerns regarding retail CBDCs (rCBDCs) compared to wCBDCs?
Indeed, at Spuerkeess, we have considered how to fully digitalise our internal delivery versus cash processes, understanding that connecting to a live wCBDC settlement system would mitigate counterparty risks. While the adoption of rCBDCs largely depends on customer acceptance, with some people reluctant to replace their cash with a digital euro, wCBDCs offer clear advantages in reducing costs and optimising settlement processes. Therefore, the business case for wCBDCs will be easy for all participants to adopt.
DLT platforms allow for automated, secure, verified and auditable information exchange between partners
Will you be participating in the ECB's upcoming ‘experiments / technical tests’? What are the objectives of these experiments?
This depends on the objectives and advantages of the proposed solution. However, since we have a digital strategy that supports innovative solutions for the financial system and a clear role in Luxembourg to support the economic growth of our country, we are a natural candidate for this kind of experiment.
Finally, with anticipated increased efficiency and cost optimisations, do you foresee the use of DLT/blockchain in other banking or operational processes, such as KYC, loans, etc.? If yes, could you elaborate on your future outlook?
At Spuerkeess, we already connect to the Luxembourgish ‘Public Sector’ DLT platform for student loan approvals. In our opinion, DLT platforms allow for automated, secure, verified and auditable information exchange between partners. Other use cases include digital identities, where DLT technology can ensure the necessary privacy for validating identities in a digital world. Additionally, in tokenisation use cases for real estate, the technology can provide significant efficiency gains.