Privacy Coins vs. CBDCs: Monero, ZCash, and Dash Leading the Charge for Financial Privacy and Freedom

• Eighteen members of the Italian Banking Association (ABI) have initiated a wholesale CBDC trial in partnership with the Bank of Italy, under the moniker Project Leonidas.
• The ABI leverages its extensive experience with DLT and blockchain, applying the infrastructure of its well-established Spunta project to test settling interbank liabilities using a wholesale CBDC.

The realm of digital currency takes a promising stride in Italy as 18 banks under the Italian Banking Association (ABI) commence a wholesale Central Bank Digital Currency (CBDC) trial with the Bank of Italy. This fascinating endeavor, dubbed Project Leonidas, ranks among the 14 selections by the central bank for Distributed Ledger Technology (DLT) experiments.

The exploration unfolds amid the European Central Bank’s recent announcement to experiment with innovative tech for wholesale payments. However, the specifics of whether they’ll incorporate a DLT-based CBDC, as per ABI’s preference, or couple DLT with conventional central bank payments, remain uncertain.

The ABI, with a commendable history in DLT deployment, champions blockchain through the Spunta project. For three years, Spunta, with about a hundred banks under its wing, has been facilitating interbank payment reconciliations using a shared ledger. This process markedly curtails interbank queries and transforms reconciliation from a monthly chore to a nightly routine.

Following reconciliation, each bank understands its debt towards other banks. Project Leonidas aims to address this interbank liability using a wholesale CBDC, capitalizing on Spunta’s existing infrastructure, which is rooted in R3’s Corda enterprise blockchain. This endeavor distinguishes itself from numerous other wholesale CBDC trials which generally concentrate on securities settlement.

As the blockchain sphere debates between wholesale CBDC and trigger payments, France steers towards multiple wholesale CBDC trials. Concurrently, Germany advocates trigger payments, eschewing ledger-based CBDCs for an intermediary blockchain linking to Europe’s Target 2 payment system. The Bank of Italy too, leans towards this approach, despite its ongoing exploration of alternatives.

The ABI, bolstered by its proven DLT proficiency, ardently backs a wholesale CBDC. Silvia Attanasio, ABI’s Head of Innovation, emphasizes their aspiration for atomic Delivery versus Payment (DvP). In her engaging analogy, Attanasio likens atomic DvP to a mermaid, illustrating that the two legs of an asset and cash must merge into a single entity. She optimistically anticipates that experimentation under the Eurosystem would reveal an efficacious solution.

Critics argue that a wholesale CBDC would fragment liquidity, a concept vehemently opposed by central banks. The perceived fragmentation arises from multiple securities ledgers each requiring surveillance by the central bank. Contrasting the current scenario, where monitoring is confined to central bank accounts, wholesale CBDC’s could potentially complicate the oversight process.

Yet, the ongoing exploration under the ABI’s initiative is set to unearth compelling insights into this enthralling intersection of banking and blockchain technology.