Some of the banks that would test the system include Santander, BBVA, CaixaBank, Bankia, and Banco Sabadell. This is the step that follows the testing of smart contracts for interbank payments.
There are signs within the banks of Spain that the Iberian country seeks to put them at the forefront in financial innovation in Europe. This is the beginning of tests with the Digital Euro, the potential digital currency of the European Central Bank, in September of this year.
The institution that would be in charge of running this project would be the Spanish payment services company Iberpay. Its main mission is to manage the interbank payments infrastructure, specialized in the exchange, clearing, and settlement of transactions between financial institutions.
In addition to Iberpay, the five main Spanish banks Santander, BBVA, CaixaBank, Bankia, and Sabadell would start to test a token equivalent to the Digital Euro. The announcement has been subject to delay due to COVID-19, but Digital Euro tests should occur between next September and October.
A 2019 report by Iberpay deals with a tokenized digital money model that Iberpay would issue. Although it does not directly mention the Digital Euro, it could be a token with similar characteristics.
According to the report, “the ECB would be in charge of the issuance of this foreseeable digital euro,” as is logically expected. They explain graphically that “for each digital euro issued, a physical euro would disappear.” The document adds that it would be like the chips in a casino, which only have value within that gaming establishment, but that they will exchange the chips for money at the end of the night.
Digital Euro as Challenge for Spanish Payment System
Internal sources note that “the proposed model has undergone a comprehensive evaluation from a legal point of view, as well as an analysis of the legal aspects to consider in the case of proposing a productive scenario, which includes possible changes in the corporate purpose of Iberpay”. Also, there is “the eventual need for ad hoc regulation, and new legal and contractual obligations,” as the document states.
In other words, no regulation governs the operation of this class of financial instruments. Therefore, it is possible to presume that this is one of the reasons why the company has not shared too much information about it.
Sources from the Bank of Spain assure that the institution “is aware of the tests and maintains frequent communication with Iberpay.” They also note that they do not participate in the tests, but it seems important that the sector is familiarizing itself with these new technologies for their possible future development.
Spain Wants to Get Ahead of Other Countries with Digital Euro
Although Spanish banks seem to want to get ahead of the rest of Europe, the truth is that they have competition. For instance, the Central Bank of France performed experiments with its version of the Digital Euro, whose tests were successful and allowed to liquidate at least EUR 40 million.
For its part, Italy gave the go-ahead to the Digital Euro in late June. However, there is no information about the results, so it is possible to conclude that it is still a proof of concept (PoC).
If Spain completes Digital Euro tests, it would have a significant advantage over other banks in the Eurozone. It could even influence the regulation that should be imposed throughout the region.
In 2019, the European Central Bank announced that it was studying the possibility of implementing a Digital Euro. The idea of the currency is to serve as an alternative to Bitcoin and other cryptocurrencies.
By Alexander Salazar
