Home Blockchain ECB confirms participants for trials using DLT for central bank money settlement

ECB confirms participants for trials using DLT for central bank money settlement

ECB: Germany-based participants are heavily involved in the first ‘wave’ of exploratory work, which will run between May and November 2024 | Credit: © European Central Bank [2015]

The participants in the first ‘wave’ of trial use of innovative technologies to settle wholesale transactions in central bank money within the eurozone have been revealed by the European Central Bank (ECB).

The Eurosystem – which comprises the ECB itself and the national central banks of the 20 European Union (EU) member states whose currency is the euro – will kick off its distributed-ledger technology (DLT)-focused explorations on 13 May. The participants will include five national central banks, ten financial institutions and six market DLT providers.

The announcement of the participants follows the ECB’s issuance of ‘call for expression of interest: exploring new technologies for wholesale central bank money settlement’ in December 2023 through which the Eurosystem invited companies to express their formal interest in taking part. The work is described as part of the Eurosystem’s broader efforts ‘to ensure that central banks keep pace with and contribute to digital innovation in wholesale and retail payments’

Trials and experiments will be conducted using three Eurosystem solutions – respectively developed by Deutsche Bundesbank, Banca d’Italia and Banque de France – enabling wholesale transactions recorded on DLT platforms to be settled in central bank money in the Eurosystem-operated T2 real-time gross settlement (RTGS) system. The central banks of Austria and Luxembourg are also now involved.

The private-sector parties taking part are largely headquartered in Germany, albeit there is also French and Luxembourgish involvement. Germany is the EU’s biggest economy and the ECB is headquartered in the German city of Frankfurt.

RELATED ARTICLE ECB kicks off 2024 with hunt for digital euro ‘components and related services’ providers – a news story (4 January 2024) on the ECB issuing five calls for applications to set up framework agreements with potential providers of digital euro ‘components and related services’ (the article’s focus is a potential eurozone retail CBDC but it includes a section on wholesale CBDC)

Who’s involved in ‘wave’ one

In an annex to its announcement listing the chosen participants, the ECB states that those involved have been approved by the ECB’s Governing Council to participate in exploratory work between May and November 2024.

Three of the companies are participating as both market participant and market DLT operator: BNP Paribas, DekaBank Deutsche Girozentrale and Landesbank Baden-Württemberg.

Those involved just as market participants are: Metzler Bank (Bankhaus Metzler), Deutsche Bank, DZ Bank (Deutsche Zentral-Genossenschaftsbank), Eurex Clearing, the European Investment Bank (EIB), Frankfurt-registered JP Morgan SE and Luxembourg-headquartered Spuerkeess. The EIB is the Luxembourg-headquartered lending arm of the EU.

Those involved just as market DLT operators are: Clearstream Banking AG, Clearstream Banking SA Luxembourg and LuxCSD SA (Luxembourg).

Austria’s central bank (Oesterreichische Nationalbank) is named as ‘central bank DLT operator’, meaning that it will operate a DLT solution that will connect to Eurosystem market infrastucture to test settlement. Banque centrale du Luxembourg joins to act as a project sounding-board for participants from the country, a role the other four central banks will also perform in their respective markets.

RELATED ARTICLE Banque de France shares lessons from 12 wholesale CBDC DLT experiments – a news story (27 July 2023) on a 48-page report sharing lessons learned from wholesale CBDC experiments involving DLT being published by France’s central bank

Use-cases being explored

The market participants and DLT operators that will take part in the exploratory work have proposed several ‘business cases’ for wholesale transactions recorded on DLT platforms with settlement in central bank money, according to the ECB’s announcement about those involved.

‘The use-cases mainly explore the securities settlement cycle, such as delivery-versus-payment, secondary market transactions and lifecycle management of securities (for example, coupon payments),’ the announcement notes, adding that other use-cases are also under consideration ‘related to cross-border payments, such as payment-versus-payment’.

A call for expression of interest to join a second ‘wave’ of trials and experiments between July and November 2024 is due to remain open until 30 April 2024.

The whole exercise was effectively kicked off 12 months ago when (in April 2023) the Eurosystem announced planned activity to explore potential solutions for central bank money settlement of wholesale transactions recorded on DLT platforms. In October last year it ran a survey asking relevant financial market participants to express preliminary interest in joining in.

A ‘New Technologies for Wholesale Settlement Contact Group’, chaired by the ECB’s market innovation and integration division head Holger Neuhaus, is ‘providing expert input and keep the Eurosystem abreast of advances in the use of DLT and other new technologies in wholesale financial markets’. The group – whose membership largely comprises representatives from major banks and financial services trade associations, as well as national central banks – has now held six meetings (its first meeting was on 21 June 2023 and sixth meeting was on 25 January 2024).