Introduction
D€X TF Project2, a pioneering venture, represents a joint Central Bank experiment involving the Bank of France, Bank of Spain, Bank of Lithuania, Bank of Austria, and Bank of Italy. Launched by the Eurosystem's High-Level Task Force on Central Bank Digital Currency, this project aimed to assess the technological feasibility of key design choices identified in the Report on a digital euro. SUPER HOW?, as the technical team representing the Bank of Lithuania, played a crucial role in the realization of this innovative project.
Challenge
The Eurosystem recognized the need to explore Central Bank Digital Currency (CBDC) and its potential applications. The challenge was to gain insights into the technological feasibility of different design choices, covering areas such as digital euro ledger, privacy, anti-money laundering (AML), circulation limits, and end-user access, as outlined in the initial report. The experiment aimed to address these design questions while maintaining compliance with the principles stated in the report.
Solution
D€X TF Project2 was structured into multiple work streams, addressing various aspects of CBDC design. These work streams assessed different design features, providing insights into the technical feasibility and compliance of different CBDC design possibilities. They covered areas such as the digital euro ledger, privacy, anti-money laundering (AML), circulation limits, and end-user access, as outlined in the initial report.
Tested Use Cases During Experiments
The experiment implemented a range of use cases covering the entire transaction chain, including:
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D€ issuance and redemption in TIPS (Tier 1 for the purpose of the experiments) and transfer to Tier 2 systems.
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Deposits and withdrawals of D€ by simulated end-users from supervised intermediaries' accounts or wallets.
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Exchange of D€ between accounts/wallets within each Tier 2 system (intra-system transactions).
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Exchange of D€ between different Tier 2 systems (cross-system transactions).
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Initiation of payments through a web application or existing payment solutions, facilitated by a common user interface powered by a common API, irrespective of the Tier 2 system in which an account/wallet is located.
Additionally, two key features of the model were successfully implemented for all Tier 2 systems:
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Programmed remuneration, including tiered remuneration for end-users.
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Programmed limits on both D€ holdings and transaction flows, including differentiated limits and a waterfall scheme.
These use cases and features were integral to assessing the practicality and effectiveness of the proposed CBDC design.
Our role
SUPER HOW? represented the Bank of Lithuania as the technical team behind D€X TF Project2:
Technical Implementation: We were responsible for the technical implementation of the project, ensuring that the infrastructure supported the various design choices and met the compliance standards outlined in the report.
Benefits
D€X TF Project2 delivered valuable insights and benefits to the Eurosystem and the broader financial ecosystem:
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Feasibility of a Tiered Approach: The experiment demonstrated the technical feasibility of a tiered model, combining centralized and distributed systems, to accommodate diverse use cases and functionalities of a potential digital euro.
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Flexibility and Innovation: The tiered approach preserved financial intermediation while stimulating financial innovation by private entities, enhancing competition and encouraging value-added services.
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Policy Support: The work performed during this experiment supports policy discussions and Eurosystem decision-making regarding the design of a potential digital euro, contributing to the investigation phase launched in 2021.
Conclusion
D€X TF Project2 has been instrumental in shaping the future of Central Bank Digital Currencies. SUPER HOW?'s role as the technical team for the Bank of Lithuania has contributed to a deeper understanding of CBDC design possibilities and their technical feasibility. This experiment marks a significant step toward the potential implementation of a digital euro, opening doors to innovative financial solutions while preserving the integrity of the financial ecosystem.
Digital Euro experiment Combined feasibility – Tiered model