IOTA: Bank of Spain to launch CBDC trial

• The Bank of Spain is planning to introduce a wholesale CBDC first to experiment new project.
• IOTA’s Smart Contracts Protocol ICSP and permissioned smart contracts make the blockchain an ideal fit.

Spain’s central bank i.e. Bank of Spain is the recent one to be joining the list of central banking institutions willing to launch their own central bank digital currencies (CBDCs). Earlier today, the central bank of Spain asked financial institutions and other tech providers to submit their proposals for the initiative by Jan 31.

As per the official statement from the bank, the program seeks to simulate the use of CBDC for wholesale transactions. This would typically involve the transaction of funds between banks and other financial institutions.

The Bank of Spain stated that their plan to launch a wholesale CBDC isn’t related to all the work that the European Union is doing on a retail Digital Euro. As per the official announcement, the central bank will experiment with three major areas of the program:

1. Simulate the movement of funds.
2. Experiment with the liquidation of financial assets.
3. Analyzing the benefits and drawbacks of a wholesale CBDC to its existing process and infrastructure.

Can IOTA Grab the Opportunity?

While central banks are accelerating their CBDC plans, they are looking for potential existing and robust infrastructure providers to rest their CBDCs. IOTA stands a great chance to grab this opportunity as it has been previously making similar proposals for the Digital Euro to the European Central Bank (ECB).

If IOTA manages to pull this off, it could be a massive opportunity for the blockchain to host more such projects in the future. However, it is important that IOTA meets the Bank of Spain’s infrastructure requirements to host the CBDC. As we know that IOTA has its own Smart Contracts Protocol ICSP which can enable the issuance of CBDCs. Additionally, IOTA offers permissioned smart contracts which could make it a good fit.

But why would a central bank choose a decentralized blockchain platform? As we know, central banks would like to control the code running the CBDC, however, they can still choose a decentralized infrastructure on which the CBDC runs.

Along with Digital Euro, IOTA was also in the final phase of testing the CBDC for the central bank of Sweden. It shows that the blockchain network has enough experience to handle such projects in the future.

The Race for CBDCs

IOTA is not the only blockchain platform willing to be the infrastructure provider for central bank digital currencies (CBDCs). Blockchain platform Ripple is also equally in the race and it has recently published its CBDC whitepaper.

Ripple is confident that its XRP Ledger is capable enough to handle stablecoins and CBDCs for billions of people across the world. Ripple’s on-demand liquidity (ODL) is also a solution adopted by banking institutions for cross-border payments.

At the same time, the war-laden country of Ukraine is gearing up to launch its own CBDC. The Ukrainian CBDC will reportedly run on the Stellar blockchain network.