The European Central Bank (ECB) is developing a new platform to settle transactions using distributed ledger technology (DLT) in central bank money, aiming to integrate and harmonise the European financial market for digital assets.
The move is part of the ECB’s ongoing efforts to ensure that the financial sector can leverage the benefits of DLT while maintaining the stability and integrity of the monetary system.
The initiative will follow a dual-track approach, with the immediate focus on developing an interoperability link with TARGET Services. These services facilitate the movement of cash, securities and collateral across Europe, playing a key role in the financial infrastructure.
ECB executive board member Piero Cipollone, who oversees the initiative, commented: “We are embracing innovation without compromising on safety and stability,” said ECB Executive Board member Piero Cipollone, who oversees the initiative.
“This is an important contribution to enhancing European financial market efficiency through innovation. Our approach will pay due attention to the Eurosystem’s goal of achieving a more harmonised and integrated European financial ecosystem.
A ‘welcome’ move
The initiative has garnered support from key financial stakeholders, including the Association for Financial Markets in Europe (AFME), an industry group representing banks and other financial institutions across Europe.
By linking the new DLT platform to existing TARGET infrastructure, AFME believes the ECB can achieve a significant degree of integration and efficiency, facilitating smoother transactions across Europe’s financial markets.
James Kemp, managing director and head of technology and operations at AFME, said: “The swift implementation of an interoperability solution will serve as an important enabler to the further scaling of DLT-based capital markets in Europe and is key in supporting Europe’s leadership position in DLT adoption.”
In addition to enabling settlement in central bank money, AFME also called for the ECB to review its collateral eligibility framework in a way that allows DLT-based securities to serve a collateral in ECB credit operations. It said such an inclusion is vital to further unlocking market liquidity and adoption of DLT-based securities.
