The European Central Bank (ECB) has expanded its initiative to enable the settlement of transactions recorded on distributed ledger technology (DLT) using central bank money.
The initiative follows a two-track approach, focusing on immediate and long-term solutions to integrate DLT transactions into the Eurosystem’s market infrastructure.
Interoperability with TARGET Services
According to the Thursday press release, the Eurosystem plans to implement a safe and efficient platform for DLT-based settlements through an interoperability link with TARGET Services.
This development aims to provide a secure method for conducting transactions in central bank money while ensuring seamless interaction with existing financial market infrastructures. Notably, a specific timeline for this implementation will be announced in due course.
The ECB’s initiative aligns with its broader goal of maintaining the stability and efficiency of its payment and settlement systems.
This expansion builds on previous exploratory work between May and November 2024. Then, 64 participants, including central banks, financial market entities, and DLT platform operators, participated in over 50 trials and experiments.
Some trials involved real transactions settled in central bank money, while others tested mock settlements.
Long-Term Integrated Solution
In addition to immediate interoperability solutions, the Eurosystem aims to explore a more integrated, long-term framework for DLT-based settlements in central bank money. This effort includes examining international operations, such as foreign exchange settlements, to enhance the efficiency and security of cross-border transactions.
Ongoing analysis of emerging financial technologies and active engagement with public and private sector stakeholders are crucial to this initiative. These efforts align with the ECB’s broader objective of promoting a harmonized and integrated European financial ecosystem.
Alignment with Digital Capital Markets Goals
The initiative contributes to the ECB’s aim of establishing an integrated European market for digital assets. It also aligns with the Governing Council’s commitment to fostering a digital capital markets union.
The ECB’s initiative is comparable to steps taken by the Swiss National Bank, which launched a wholesale central bank digital currency (CBDC) pilot in December 2023. The Swiss initiative, which enabled the settlement of digital bonds, was recently extended until at least 2026.
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