Central banks in Europe Have Been Stepping Up Their Efforts to Use Distributed Ledger Technology (DLT)
Yesterday, the Banca d’Italia and the Deutsche Bundesbank held a joint workshop to share their experiences with settling assets traded on new and innovative market solutions based on Distributed Ledger Technology (DLT) using the programmable capabilities available on DLT-based systems in central bank money.
Main Goal of the Joint Workshop
According to the official statement, the main goal of the joint workshop was not to use DLT as a replacement for older systems. The initiative focused on the possibility of supplementing traditional central bank money settlement methods with a programmable trigger mechanism connecting the DLT-based asset and the cash to be settled via traditional payment systems, while maintaining the delivery-versus-payment settlement mode, which reduces counterparty risk for both the buyer and the seller.
This trigger method could act as a technical link between DLT-based tokenized asset settlement and traditional payment systems. Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank, and Societe Generale participated in a pilot test integrating traditional finance with distributed ledger technology in March 2021, conducted by Deutsche Boerse, Deutsche Bundesbank, and Germany’s Finance Agency.
The German Finance Agency used the DLT trigger system to test securities trading on primary and secondary markets and issue a 10-year federal bond as part of the pilot. A trigger solution would benefit the wholesale sector and might be seen as a complement to the Digital Euro, which is now under consideration by the Eurosystem and is primarily focused on retail payments.
Distributed ledger technology (DLT), according to Ignazio Visco, the governor of the Italian central bank, has the potential to usher in new products and services, generate additional revenue streams, reduce operational costs, and streamline organizational structures.
He pointed out that infrastructure-level DLT adoption in traditional markets would take time due to the substantial research, cost, and risk assessments that would be required.