- The European Central Bank (ECB) has expanded its initiative to settle transactions recorded on distributed ledger technology (DLT) in central bank money
- The ECB will adopt a two-track approach: developing an interoperable platform with existing infrastructures and exploring a long-term integrated solution
- This move aims to enhance European financial market efficiency and support the digital capital markets union
The European Central Bank (ECB) has announced an expansion of its efforts to facilitate the settlement of transactions recorded on distributed ledger technology (DLT) using central bank money. This strategic move involves a dual approach: initially creating a platform interoperable with current infrastructures, followed by the development of a comprehensive, long-term solution. The initiative seeks to bolster the efficiency of European financial markets and aligns with the ECB’s commitment to fostering a digital capital markets union.
Two-Track Approach to DLT Integration
The ECB revealed a dual-phase plan in a press release last week. In the first phase, the Eurosystem plans to develop and implement a secure and efficient platform that enables the settlement of DLT-based transactions in central bank money through an interoperability link with TARGET Services. A detailed timeline for this implementation will be provided in due course.
The second phase involves exploring a more integrated, long-term solution for settling DLT-based transactions, which will also encompass international operations, such as foreign exchange settlements.
Commitment to Innovation and Stability
The ECB emphasizes its dedication to embracing innovative solutions within its market infrastructures while maintaining the safety and efficiency of TARGET Services. The institution will continue to analyze emerging technologies and actively engage with both public and private stakeholders to ensure a harmonized and integrated European financial ecosystem.
Piero Cipollone, ECB Executive Board member overseeing the initiative, stated, “We are embracing innovation without compromising on safety and stability.” He further noted, “This is an important contribution to enhancing European financial market efficiency through innovation.”
Alignment with Digital Capital Markets Union
This initiative contributes to establishing an integrated European market for digital assets, aligning with the Governing Council’s call on 7 March 2024 to promote a digital capital markets union. It builds upon the Eurosystem’s exploratory work on new technologies for wholesale central bank money settlement conducted between May and November 2024. During this period, 64 participants—including central banks, financial market participants, and DLT platform operators—conducted over 50 trials and experiments, some involving actual settlement in central bank money.
As the ECB advances this initiative, it aims to support the use of innovative solutions in market infrastructures, ensuring that the integration of DLT into the financial system enhances efficiency without compromising stability.
