ECB confirms interim wholesale DLT settlement solution
On Monday we reported that the Eurosystem was planning to offer an ongoing wholesale DLT settlement solution in central bank money, after its trials ended in November. Today the European Central Bank formally announced its plans for a two track solution.
This involves an interim option to be launched fairly soon while it works on a longer term, more integrated option. It said, “as soon as feasible, the Eurosystem will develop and implement a safe and efficient platform for such settlements in central bank money through an interoperability link with TARGET Services.”
Of the three payment options trialed last year, the German Trigger solution matches this description most closely.
Is the wCBDC in or out in the interim?
However, technically the French solution for ‘exploratory cash tokens’ involved escrowing funds on TARGET2. So the question is whether the French DL3S solution for wholesale CBDC (wCBDC) is in or out. The third Italian TIPS Hashlink solution also links to a TARGET service. We asked for clarification from the ECB.
A spokesperson responded: “The future Eurosystem solution will build on the insights we got from the earlier tests with the three NCB (national central bank) approaches. The three interoperability-based solutions were configured and scaled for testing purposes. The outcome of the Eurosystem's exploratory work has confirmed their capabilities for the limited timeframe, scale and scope of exploratory work. To be efficient and offer a Eurosystem service in a timely fashion, we will reuse elements of the existing solutions.”
No timeframe has been announced, but in recent talks ECB Director Piero Cipollone said the rough timing for the interim solution would be months not years.
Regarding the longer term integrated solution, the statement said this would include international transactions and FX settlement. We noted in Monday's report that one option is a European unified ledger approach, or alternatively a shared ledger which bridges money and assets from other ledgers.
Reading between the lines, it's possible the German solution might be the interim one, and the French one could form the basis of the more permanent solution.
“We are embracing innovation without compromising on safety and stability,” said ECB Executive Board member Piero Cipollone, who oversees the initiative. “This is an important contribution to enhancing European financial market efficiency through innovation. Our approach will pay due attention to the Eurosystem's goal of achieving a more harmonised and integrated European financial ecosystem.”
AFME welcomes the move
The Association for Financial Markets in Europe (AFME) welcomed the announcement.
“The swift implementation of an interoperability solution will serve as an important enabler to the further scaling of DLT-based capital markets in Europe and is key in supporting Europe's leadership position in DLT adoption,” said James Kemp, Managing Director and Head of Technology and Operations at AFME.
AFME also called for steps to avoid liquidity fragmentation and a review of the collateral eligibility framework to support DLT-based securities being used as collateral in ECB credit operations.
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Update: We added the response from the ECB, removed the Trigger solution from the title, added the AFME response.
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