The European Central Bank has been stepping up its efforts to use distributed ledger technology (DLT) in central bank currency settlement, which is the foundation of blockchain.
Banca d’Italia and Deutsche Bundesbank, the central banks of Italy and Germany respectively, have joined forces to settle central bank funds based on DLT-based asset exchanges.
Official Announcement emphasize The main goal of the joint seminar is not to use DLT as an alternative to traditional systems. Instead, the plan aims to supplement current central bank currency settlement practices through a programmable trigger mechanism that links DLT-based assets (such as tokenized securities) with cash settled through traditional payment systems.
The announcement stated that the proposed system will minimize the counterparty risk of both parties by retaining the settlement model of delivery and payment. Programmable triggers will complement the digital euro and serve as a technical bridge between the existing payment system used by the central bank of the euro system and DLT-based tokenized asset settlement.
Ignazio Visco, governor of the Bank of Italy, said that distributed ledger technology has the potential to introduce new products and services, generate additional revenue streams, reduce operating costs, and improve the efficiency of organizational structures. He emphasized that it takes time to adopt infrastructure-level DLT in traditional markets, “because of the necessary in-depth investigations and cost and risk assessments.”
Deutsche Bundesbank President Jens Weidman said: “If market participants want to benefit from new technologies such as DLT to solve the settlement of tokenized assets, the central bank should settle the corresponding cash leg in a safe central bank currency. Support this.” He added:
“The tested trigger solution can well meet the market demand and keep the central bank’s funds in the system run by the central bank. Compared with the creation of a wholesale central bank digital currency, the trigger solution can be in a shorter time Put into use.”
Deutsche Börse, Deutsche Bundesbank and German financial institutions conducted a pilot test involving Citibank, Barclays Bank, Goldman Sachs, Commerzbank, DZ Bank and Societe Generale. Connect traditional finance with distributed ledger technology In March 2021, the German Financial Agency issued a 10-year federal bond through the DLT trigger system and tested securities transactions in the primary and secondary markets as part of the pilot.