By Alicia Maher
Fabio Panetta, an executive board member at the ECB, the European Central Bank, is considering integrating DLT (distributed ledger technology) into the present payment system. The aim is to make the central bank currency competitive among new payment systems.
ECB Should Consider Adopting DLT – Panetta
The ECB executive discussed blockchain technology on Monday while speaking at a symposium in Frankfurt. According to Panetta, the ECB has to pay attention to DLT as new technologies are coming up.
Therefore, he said the central bank must preserve the role of its money in payment settlement. He added that the central bank money must remain a safe asset in today’s payment system.
Additionally, the executive expanded on “wholesale CBDC.” He referred to it as the settlement of bank transfers and other wholesale transactions.
Panetta noted that digital central bank money has been available for years. However, the technology used for its operation was not DLT.
The major problem is how to modernize and improve the services the ECB is offering. Also, the ECB should make room for retail CBDCs.
Meanwhile, Panetta said the ECB is already looking at the use cases of DLT. The aim is to use this technology to improve its services and wholesale payment system.
Furthermore, financial institutions and banks have started experimenting with DLT. These entities are the ones usually active in securities and payment settlements.
“We are currently engaging with the stakeholders involved in payment settlements. This shows they believe in the integration of DLT in the financial sector. Hence, financial institutions will switch from centralized to decentralized networks. DLT will be used for transfer of assets and cash,” Panetta added.
Benefits Of Using DLT
Meanwhile, Panetta highlighted some benefits of integrating DLT into the payment system. One of them is the ability of financial institutions to settle transactions 24/7 and instantly.
DLT can help market stakeholders to improve cross-currency and cross-border transactions. It will help remove the current friction faced with using the current banking system.
The ECB is evaluating two ways to integrate DLT with the TARGET payment system. The first option involves creating a bridge between central bank infrastructures and market DLT systems.
This bridge will allow the transfer of securities on a DLT network to cause settlement in bank currency. The other option involves developing a new DLT-backed wholesale settlement system with DLT-backed central bank currency.
Meanwhile, Panetta argued that the ECB must carefully assess such a system’s implications. This has to do with how they affect liquidity management, governance, and settlement efficiency.
However, Panetta concluded that the technology used for securities transactions and the wholesale settlement does not matter. The ECB’s goal is to ensure that its currency remains a stable anchor in the financial system.