ECB to Launch a Digital Euro Proof-of-Concept in 2027 (ECB)
The European Central Bank (ECB) published a presentation of its plans for a digital euro proof-of-concept (POC) program starting in H2 2027. The 12-month POC will involve a limited number of payment service providers (PSPs), merchants, and approximately 5,000-10,000 Eurosystem staff testing four use cases: person-to-person and person-to-business transactions using both online (alias/access number, e-commerce) and offline near-field communication (NFC) methods. The ECB will launch a call for expression of interest in March 2026 to select participating PSPs based on technical capabilities, market reach, and geographical representation. During the POC, transactions will use a digital means of payment that mimics the digital euro’s characteristics but won’t have legal tender status, operating under the Revised Payment Services Directive (PSD2) framework. [Source: ECB]
Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin (IMF)
The IMF published a paper that examines the financial stability risks posed by systemically important fiat-backed stablecoins and explores regulatory design choices to mitigate them. The authors argue that if stablecoins scale to systemic size, they could create dangerous feedback loops: redemptions would force bond sales, depressing market prices and yields, which would erode the issuer’s solvency and trigger further redemptions—amplifying stress across financial markets. Through both conceptual analysis and a simulation model, the paper demonstrates that capital requirements (maintaining asset-liability ratios above 100%) and cash reserve requirements are the most effective stabilizers, substantially reducing the likelihood and severity of runs and fire sales. Redemption gates and lower-duration bond portfolios provide additional but more modest protection by moderating intensity rather than frequency of crises. However, in any case, the paper concludes that international regulatory coordination will be essential to prevent arbitrage. [Source: IMF]
Upcoming Speaking Engagements:
The Digital Euro Conference 2026 (Frankfurt, March 26) will explore the future of money with a focus on CBDCs, stablecoins, and commercial bank tokens. This hybrid event offers the perfect platform to understand the future of digital money! [Register here and get 20% off the regular ticket price by using the Kiffmeister20 code!]
I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
