Financial institutions and distributed ledger technology operators collaborate with eurozone central banks in the first round of exploratory efforts towards wholesale settlements in central bank money, beginning this week. Photo: Shutterstock

Financial institutions and distributed ledger technology operators collaborate with eurozone central banks in the first round of exploratory efforts towards wholesale settlements in central bank money, beginning this week. Photo: Shutterstock

Five financial entities based in Luxembourg will be key participants in the Eurosystem’s initial six-month exploratory phase for wholesale settlements using distributed ledger technology, commencing on Monday.

On 13 May 2024, the Eurosystem commenced exploratory work on innovative technologies aimed at settling wholesale transactions in central bank money, marking a collaborative effort between financial institutions and central banks. This initiative, as detailed in a press release by the European Central Bank, involves a significant partnership between industry players and regulatory authorities.

The decision to embark on this groundbreaking exploration was ratified by the governing council of the ECB on 3 April 2024, granting participation to ten market entities with access to Target (Trans-European Automated Real-time Gross Settlement Express Transfer System) and six distributed ledger technology (DLT) operators. Among the participating entities are five financial institutions based in Luxembourg, notably BNP Paribas SA, Clearstream Banking SA, European Investment Bank, LuxCSD SA and Spuerkeess.

Each of the participating financial entities expressed keen interest in partaking in both live trials involving actual settlements in central bank money and simulated experiments within controlled test environments, stated the ECB. The inaugural phase of this initiative will witness active involvement from central banks across the euro area, including the Luxembourg Central Bank (BCL), Banque de France, Banca d’Italia, Deutsche Bundesbank and Oesterreichische Nationalbank.

Use cases

As part of the exploratory phase, the participating market entities and DLT operators have proposed multiple business cases revolving around wholesale transactions recorded on DLT platforms, culminating in settlements using central bank money.

These use cases predominantly revolve around the securities settlement cycle, encompassing delivery-versus-payment mechanisms, secondary market transactions and the lifecycle management of securities such as coupon payments. Additionally, the exploration extends to potential cross-border payment scenarios, specifically focusing on payment-versus-payment processes.

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