ECB’s Mersch speaks of blockchain: “Who could access the central bank ledger?”

Rick Steves

As blockchain technology, i.e. distributed ledger technology, attracts multimillion dollar funding for development purposes, and the Central Bank of Barbados backs a digitized version of the Barbadian Dollar launched by Bitcoin exchange Bitt, the European Central Bank found the time to present a statement on the subject. ECB Executive Board Member Yves Mersch gave a […]

Who could access the central bank ledger?

As blockchain technology, i.e. distributed ledger technology, attracts multimillion dollar funding for development purposes, and the Central Bank of Barbados backs a digitized version of the Barbadian Dollar launched by Bitcoin exchange Bitt, the European Central Bank found the time to present a statement on the subject.

ECB Executive Board Member Yves Mersch gave a speech highlighting the DLT’s disruptive potential in the financial market, and welcoming the industry’s efforts to work on standardization and interoperability both in the payments and in the post-trade domain.

Mersch admitted that the ECB has already launched some experimental work with DLT to figure out a hypothetic scenario in which Eurosystem market infrastructures, T2 and T2S, are run on DLT and its implications that go beyond the operational and technical sphere, since it raises the question of who could access the central bank ledger.

“Access to the ledger for payments and securities settlement could be restricted to banks, or to banks and market infrastructure providers such as central securities depositories (CSDs), maybe extended to central counterparties (CCPs) and automated clearing houses (ACHs). Consequently, these would be the only entities that have access to the central bank digital currency on the ledger. But why stop here?”, said ECB’s Mersch, willing to broaden the concept.

“What if PSP or even individuals could access the central bank digital currency on the ledger via their bank accounts? This scenario would preserve the current relationship model of banks with central banks and to some extent also the existing organizational structure of the financial ecosystem.”

The ECB official presented a third scenario, more far-reaching that the others, where the DLT network is open to all citizens, enabling them to hold commercial bank deposits with banks or digital currency at the central bank. Key questions arise, from what functions would be embedded in a central bank deposit account, to the monetary transmission mechanism work and the economy at large in a scenario where the basic business model of many banks could be impaired.

Beyond banks, DLTs would affect market participants’ investment strategies and business models, and potential implication on the integration of the European capital market, financial inclusion, and economic growth. Many other questions are valid, but ECB’s Mersch point was that such a small change in the Eurosystem’s market infrastructure for the settlement of payments and securities raises so many questions.

“We have a lot of more thinking to do. Within the ECB, I will steer an organizational structure for analytical work on technological innovation in the financial sector. It will range from practical aspects, such as the possible usage of DLT for our Eurosystem market infrastructure, to more research driven activities like the implications of the issuance of central bank digital money”, he continued, noting that there is big demand for research into the DLT related questions and policy implications.

 

 

Read this next

Institutional FX

FX volume drops 13pct at CLS Group in April 2022

FX settlement specialist CLS Group today reported that the executed volumes of currency trading on its platforms were notably down in April.

Crypto Insider, Opinion

Regulation: The Gold-Standard for Crypto-Assets

When the US supervisory authority SEC allowed an investment product referencing Bitcoin futures to be traded for the first time last October, this was widely perceived as a signal that cryptocurrencies had finally become established as an asset class.

Executive Moves

Solid hires FX industry veteran Darren Barker for multi-bank ECN’s business development

His curriculum vitae includes former roles at Cantor Fitzgerald, Sucden Financial, R.J. O’Brien, Jefferies, Natixis, Unicredit, J.P. Morgan, Raiffeisen, RBS International, UBS, Deutsche Bank, and Citi. 

Inside View

Mihails Safro, xpate CEO: Tips sellers need to know to overcome compliance obstacles

The unprecedented growth of e-commerce changed shopping dramatically last year. Many sellers suddenly faced a rapidly growing number of customers who had to stay home during the lockdown. When some clients adopted Netflix and Spotify as part of a daily routine, others ventured into online business. Robinhood alone saw a whopping 6 million rise in user numbers in 2 months. 

Institutional FX

BMLL delivers Level 3 data to Kepler Cheuvreux for order book analytics and algo performance

The solution covers more than 6.5 years of harmonised historical data from 65 venues and combines it with easy to use APIs and analytics libraries in a secure cloud environment. 

Digital Assets

Crypto Is An Invaluable Tool In The Fight Against Financial Oppression  

Crypto has proven itself to be much more than just a hot investment. Indeed, some say it’s poised to play a critical role in the future of finance

Executive Moves

Parameta appoints Head of Benchmark and Indices with a focus on ESG and rates

The firm said building out its benchmarks & indices offering will now be a core priority, with a particular focus on the ESG and rates space.

Digital Assets

WunderTrading brings automated crypto trading to United States

“Among developed countries, Americans are the heaviest users of cryptocurrencies, with 13% having invested in cryptocurrencies over the past year.”

Retail FX

ACY Securities sponsors child safety and family welfare charity Barnardos Australia

Sponsoring Barnardos will give ACY Securities and its employees an opportunity to do volunteer work through different outreach programs.

<