Bank of Lithuania’s digital currency experimentation: Lessons learned

As part of a broader Eurosystem effort, the Bank of Lithuania carried out an experiment on the European central bank digital currency (CBDC) — digital euro, building a central bank-provided, two-tier settlement infrastructure. A number of important product development and functional features emerged from the experiment. For example, it was found that the digital euro could offer a novel two-tier infrastructure, which interoperates centralised and decentralised ledgers with new roles for financial intermediaries. Such new roles stem from new technologies underlying CBDC settlement and PSD2-like interfaces that could open up new possibilities to develop additional services. The central bank is able to provide a real-time, privacy-preserving and risk-free payment instrument for citizens to benefit from both legacy account-based and innovative DLT-based systems. Control features of the digital euro tested include safeguarding against double spending, limiting CBDC holdings and applying adjustable interest rates — features vital to the central bank’s mandate to foster financial stability. The infrastructure was analysed for its privacy modalities, which proved to be configurable per user profile or transaction type, opening up more possibilities for the future use of decentralised identity (DID). Overall, the experiment demonstrated that technology is not a limiting factor for the digital euro. The main challenge is to find the strategic placement of the digital euro in the retail payment ecosystem, with a substantial value proposition for citizens and business opportunities for financial institutions. This paper presents views on the CBDC and lessons learned from the Bank of Lithuania experimentation.