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New technologies will have a profound impact on the financial market. It is essential that these technologies are explored, analysed and tested to ensure that tomorrow’s market infrastructure is not only efficient and innovative but also remains safe and resilient. Exploring the potential of new technologies such as Distributed Ledger Technology (DLT) is high on the ECB’s strategic agenda.
Mr. Mersch concludes:
“The ECB considers new technologies as essential to enhancing the efficiency of our market infrastructure. However, it’s time to frame the discussion. I think the potential of DLT in the field of market infrastructures revolves around two fundamental concepts of central bank money on DLT:
First, can central bank settlement services themselves be operated in a DLT environment? Today, DLT is not ready for mass adoption and not sufficiently mature for use in our central bank market infrastructures (given the high requirements of safety and efficiency). Future use needs to be explored, and this is what we are doing based on concrete use cases (i.e. can DLT meet the TARGET2/T2S service levels). As new technologies don’t stop at borders, we have furthermore decided to cooperate with the Bank of Japan to explore the potential future use of DLT for central banking services in a more global context.
“Second, how could a central bank interface and interoperate with DLT-based settlement services which are not necessarily offered by the central bank itself? For example, it needs to be assessed whether “a central bank could inject and control the amount of central bank money circulating in a DLT environment”. Or whether, for example, a private sector trustee could ensure that the values circulated in a DLT-based solution are fully backed by a corresponding amount of central bank money held "off-chain”. Such concepts could alter the existing central bank role as operator and impact monetary policy implementation. Therefore, joint analysis by the Eurosystem will be required.
"We are on a journey which could radically alter the financial ecosystem as we know it. The ECB is committed to be part of this journey.”