On 6 March 2025, European Central Bank President Christine Lagarde confirmed that the ECB intends to complete the digital euro preparation and testing phase by October 2025.¹ On the same day, US President Donald Trump issued an executive order, announcing the establishment of a strategic bitcoin reserve and a national digital asset stockpile.² Both announcements were preceded in 2024 by the full implementation of the European Markets in Crypto-Assets (MiCA) regulation.³

These examples of how digital assets are converging into the traditional finance space and driving demand for new services set the backdrop for Deutsche Bank’s Payments and Digital Assets conference on 12 March, held at the 21 Moorfields, London offices. Chaired by the Deutsche Bank Research strategist Marion Laboure and the Corporate Bank’s Head of Digital Assets Sabih Behzad, the discussions provided a deep dive into how this is playing out in terms of regulation, technology and market demand, all converging to shape the next decade of finance.

This article highlights several key themes.

Different approaches to digital money are evolving as “the US is leaning towards stablecoins, while Europe is more focused on central bank digital currencies (CBDCs),” said Marion Laboure, who introduced Wim Mijs, CEO of the European Banking Federation and Michael Mainelli, President of the London Chamber of Commerce and Industry and former Lord Mayor of London.

Figure 1: Central banks and private sector both expand portfolio of digital money in the monetary system

Source: Deutsche Bank

Following a helpful reminder from Laboure about how central banks and the private sector are both expanding the portfolio of digital money in the monetary system (see Figure 1), Wim Mijs said that while Europe has a “very efficient and well-managed credit transfer system”, we now need to “speed up the interoperability of instant payments," to facilitate cross-border payments throughout Europe. While banks are already working together to expand domestic payment systems into cross-border coverage, progress is determined largely by the initial investment and the maturity of that investment.

Left to right: Marion Laboure (Deutsche Bank); Michael Mainelli (London Chamber of Commerce); and Wim Mijs (European Banking Federation)

Mijs pointed out that Europe’s payments are partially dominated by non-EU companies, such as international card schemes, big techs, wallets and super apps. While he agreed that central banks are right to explore central bank digital currencies (CBDCs), the fact that Europe has taken a different direction with its preparation for a retail digital euro raises a number of issues. First and foremost, because the digital euro "is much more than the digital equivalent of cash". It would need to be smoothly integrated with digital wallets, banking apps and instant payments, leveraging existing European payment solutions and infrastructures and avoiding unintended consequences. He suggested the ECB is “trying to do everything for everyone all at once”, creating a new pan-European payment system and rulebook.

This explains why banks' reception has been “lukewarm”, with the proposed partnership between central and commercial banks being unbalanced – the latter being asked for sizeable investments into a system “over-prescribed” by the ECB that does not factor-in the investments already made or underway by European banks into payment solutions, while not adequately recognising the difference of banks from other stakeholders, whose obligations and investments for implementation bear no comparison to those expected by banks. The EU should recognise its banking sector as a strategic actor, added Mijs, especially in the current geopolitical context, and a public-private partnership should be “where both EU authorities and market participants engage on an equal footing to reach a mutually acceptable and attractive solution that can serve Europe’s strategic objectives of sovereignty, resilience and competitiveness”.

In the subsequent question time, there was consensus that any retail CBDC would need to work with commercial banks' payment solutions, in close cooperation, as central banks would not be banking retail borrowers directly. And that entails the establishment of the right parameters, including the right legal framework from the European Commission and European Parliament.

By way of background, Jürgen Schaaf, Adviser for Market Infrastructure and Payments at the ECB, has shared an in-depth flow update about timelines, goals and the role of banks in the new CBDC ecosystem in Europe. See ‘CBDC’s: where do we stand in Europe?’ (5 December 2024).

“When you tie your money to anything very tightly you lose its fungibility”
Michael Mainelli, President of the London Chamber of Commerce and Industry

Mainelli pointed out that it would all boil down to economics and that a conflict exists between stablecoins and CBDCs, which suggests that co-existence is not on the immediate horizon. “The great advantage of CBDCs is the same great advantage of smart contracts in Ethereum, which is programmable. But when you tie your money to anything very tightly you lose its fungibility.” He also highlighted the potential risk to financial system stability and reminded delegates that governments could use CBDCs with fiscal policy implementation. After all, when a central bank issues a payee money it is issuing government debt, so “we are actually trading in tax credits”. And it is all very traceable. As EY’s April 2024 report commented, whether a CBDC harnesses blockchain or not, “they can generate a digital train revealing the flow of funds – where they have originated, their destination and every transaction inbetween. Capabilities like these are likely to prove useful in reducing tax controversy."⁴

As for the mainstream utility of cryptocurrencies in the longer term Mainelli was unconvinced, and said that they were, in effect gambling instruments and should be regulated as such – in the UK this would be via the Gambling Commission.

Left to right: Sabih Behzad (Deutsche Bank); Ambre Soubiran (Kaiko); Nick Kerigan (Swift); Ed Budd (Adhara)

Reflecting on the many different forms of money (see Figure 1), Behzad asked, “do we need them all?” In other words, are CBDCs needed if private money can do the same thing and why so many cryptocurrencies?

“I don’t think we need so many cryptos and so many layer ones,” replied Kaiko CEO Ambre Soubiran who, following a career in traditional finance banking, founded the digital asset market data business in 2014 “We cover about 300,000 instruments which is a lot of thousands of individual assets – an instrument being a pair so there are many more. We think that only 50 should be deemed investible,” she suggested. “And out of that, given that part of our business is also providing indices and benchmarks that are investible and that you can replicate and hedge we think that is probably 10 assets. These do not include CBDCs but stablecoins and forms of cryptocurrency.”

On 10 March, just before the conference, Spain’s financial regulator, the Comisión Nacional del Mercado de Valores (CNMV), announced its approval for BBVA, the country’s second largest bank, introducing bitcoin and ether trading services through its mobile application. BBVA has stated it will manage customer holdings using its in-house cryptographic key custody platform, eliminating reliance on third-party custodians.⁵

“Central banks do not want to be fully disintermediated in financial flows”
Sabih Bezhad, Head of Digital Assets, Deutsche Bank

Contrasting stablecoins with CBDCs, Behzad talked about the intention of central banks. He stated, “Given the demise of cash, they want to offer a fully digital alternative to cash to end customers. Adoption is not the only measure – the desire to retain independent monetary policy is also a fundamental reason to pursue such instruments. Central banks do not want to be fully disintermediated in financial flows – this is why the future is unlikely to consist exclusively of private money.”

Edward Budd, co-founder of Adhara went on to provide an explanation about tokenised deposits that bridge the gap between the new technology underpinning crypto, and traditional banking deposits. In other words, the liabilities of the bank represented for existing account holders – so different from the stablecoin offering. Tokenised deposits aim to deliver some of the benefits provided by the crypto ecosystem but within a traditional banking model – always on, 24-7 money movements coupled with atomicity and the potential for programmability.

“It is a different way of digitally representing an existing bank of money in an account – ie a liability. There is nothing innovative about that – from a regulatory and accounting perspective, adoption that breaks those norms is very slow and very costly.” He said that whether the standards were IFRS or GAAP, “there is zero change in terms of the way you view and account for that money.” In November 2024, the company announced the successful conclusion of a blockchain-based corporate payments experiment between UBS and Deutsche Bank, leveraging the Bundesbank’s Trigger Solution and bank-issued tokenised deposits.⁶

Swift’s Head of Innovation Nick Kerigan sees significant momentum in the growth of existing securities tokenisation and highlighted that some “real issuance is taking place” as financial institutions, central banks, and fintechs are pushing ahead with tokenised asset classes that could change capital markets landscape. Reprising his observations in Global Treasurer a month earlier,⁷ he reminded delegates that the German development bank, KFW has issued more than €17.5bn in digital bonds, and the European Investment Bank had launched its fifth digital bond worth €100m. Meanwhile, BlackRock and other asset managers are leading the way in tokenised investment funds.

“The ability to settle in central bank money is seen by the European market as a key factor in the adoption of new technologies”
Nick Kerigan, Head of Innovation, Swift

“What the European Central Bank has been doing is looking at how it can enable settlement in central bank money for digital and tokenised securities,” Kerigan said. On 28 February, Piero Cipollone, Member of the Executive Board of the ECB explained two reasons why the availability of central bank money to settle transactions using distributed ledger technology is so important:

“First, if we don’t use central bank money, other settlement assets – such as stablecoins or tokenised deposits – will be used, which would reintroduce credit risks and fragmentation in the financial system. And second, the possibility to settle in central bank money is seen by the market as a key factor in the adoption of new technologies.”⁸

Last year’s ECB trials of DLT for central bank money saw 60 industry participants, including Swift and Deutsche Bank. More than 40 experiments and trials covered a wide range of securities and payments use cases, including the first issuance of an EU sovereign bond using DLT. A total value of €1.6bn was settled via trials over a six-month period, exceeding values settled in comparable initiatives in other jurisdictions. The trials offered three different solutions to link to the ECB’s TARGET services to market DLT platforms. This allowed industry participants to either settle real transactions in central bank money or conduct experiments with mock transactions.

All of this, said Kerigan “shows a groundswell of innovation in the European market, around tokenisation and the demand for central bank money instruments”.

During the closing panel session on regulation, Deutsche Bank moderator Mat Seneviratne, Global Head of Anti Financial Crime, Digital Assets, noted that there is a split in sentiment over the pace and clarity in the US compared with the UK. In the US, there is, he reflected, “increasing regulatory certainty” with President Trump’s call for a stablecoin proposal, and for the Office of the Comptroller of the Currency (OCC) to lift regulatory restrictions on banks engaging with crypto firms. In January 2024 the US Securities and Exchange Commission approved the first spot bitcoin exchange traded funds, clearing 11 ETFs to list. The Financial Times called the move “a watershed moment that cryptocurrency enthusiasts are betting will draw new retail and institutional investors into the market".⁹

However, Europe’s MiCAR made it over the line – and while not complete (it does not cover DeFI or NFTs), it has been in force since June 2023, becoming fully applicable at the end of 2024 and can have its scope widened later.

“What you ideally want is not to have to set up different liquidity pools in different jurisdictions – do you really want a separate custodian in every country” asked Seneviratne, who then called for “a bit of pragmatism” given “there is room for harmonisation in certain areas and scope for building a suitable control framework”.

He concluded the afternoon’s discussions with the takeaway that “while there is a growing opportunity to operate in the digital asset space with regulatory clarity, where uncertainty still exists, “we can look to apply lessons and standards from other areas of financial services to help foster continued innovation”.

The Deutsche Bank’s Payments and Digital Assets conference was held on 12 March at 21 Moorfields, London

Sources

¹ See coindesk.com
² See whitehouse.gov
³ See corporates.db.com
⁴ See ey.com
⁵ See thepaypers.com
⁶ See adhara.io
⁷ See theglobaltreasurer.com
⁸ See ecb.europa.eu
⁹ See ft.com