European central banks have stepped up their efforts to use distributed ledger technology (DLT), the backbone of the blockchain, in central bank monetary transactions.

Banca d’Italia and Deutsche Bundesbank, the central banks of Italy and Germany, respectively, have joined forces to work out the settlement of central bank funds on DLT-based asset exchanges.

The official announcement confirms that the main purpose of the joint workshop was not to use traditional digital processing technology as an alternative to traditional systems. Instead, the initiative aims to complement existing central bank bank settlement practices with a programmable release mechanism that links DLT-based assets, such as tokenized securities, and cash settled through traditional payment systems.

The report said that the proposed system reduces counterparty risk for both parties by maintaining the method of delivery versus payment method for settlements. The programmable operator will complement the digital euro and act as a technical bridge between the existing payment systems used by Eurosystem central banks and tokenized asset settlement based on DLT.

Italian Central Bank Governor Ignazio Visco said that DLT can launch new products and services, generate additional revenue streams, reduce operating costs and improve the efficiency of organizational structures. He stressed that implementing DDP at the infrastructure level in traditional markets would take time “due to the need for in-depth research and assessment of costs and risks”.

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“If market participants want to take advantage of new technologies such as DLT to settle tokenized assets, central banks should support this by allowing the corresponding monetary portion to be settled with safe central bank funds,” said Deutsche Bundesbank President Jens Weidmann. he added:

A tested operating solution may meet market needs and store central bank funds in systems managed by the central bank. Compared to creating a wholesale digital currency for central banks, a launch solution can be deployed in a much shorter time frame. ”
Deutsche Boerse, Deutsche Bundesbank and the German Financial Bureau conducted a beta test with Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank and Societe Generale to bridge the gap between traditional finance and distributed ledger technology in March 2021. The Federal Office issued a 10-year tenure through a system Run a DLT and test primary and secondary stock trading as part of a pilot project.

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