ECB Mulls Decentralized Settlement for Wholesale Financial Markets

The European Central Bank wants its centralized financial settlement systems to better interact with distributed ledger technology, as it seeks to keep pace with technological developments in financial markets.

The ECB is pondering whether to issue a retail central bank digital currency for use by regular traders and citizens, but it also wants to use blockchain technology in wholesale financial transactions.

The central banks that use the euro currency, known collectively as the Eurosystem, are “to look into how wholesale financial transactions recorded on DLT platforms could be settled in central bank money,” according to a statement issued by the ECB on Friday. The ECB is convening an industry group to help, it said.

The announcement reflects mounting interest in the technology from traditional financial markets, including for post-trade infrastructure that completes deals struck in trading venues. Euroclear, a Brussels-based firm that specializes in clearing and settlement, is set to release a new platform for DLT-based bond trading shortly, and Forge, the crypto arm of French bank Societe Generale, has introduced the CoinVertible stablecoin (EURCV), pegged to the euro, to settle transactions that involve digital assets.

In remarks made to the European Parliament’s Economic and Monetary Affairs Committee on Monday, Fabio Panetta, a member of the ECB's executive board, said that “working to make the European payment and financial system more competitive … requires working on several fronts,” not just the retail digital euro.

“We already have a wholesale CBDC – a digital infrastructure that allows banks to make interbank payments,” Panetta said, citing the ECB’s system known as TARGET2. “We are now assessing whether the technology, which we use, the centralized technology operated by the Eurosystem, needs to be updated to be more easily interoperable with intermediaries that might be adopting distributed ledger technology.”

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