The European Central Bank (ECB) is closely monitoring the developments in the blockchain space, but considers that the technology is still not mature enough to become a part of its market infrastructure.
These comments were made in a special feature “Technological innovation: Distributed Ledger Technology – challenges and opportunities for financial market infrastructures”, released alongside the bank’s annual report. The ECB noted the various potential advantages of the blockchain or distributed ledger technology (DLT) including permitting automatic updates of records, which would optimise the reconciliation process and thus lower back-office costs, and shortening the settlement cycle, thereby reducing collateral and capital requirements.
The bank has even set up a DLT task force bringing together market experts on financial innovation and cyber security. However, the ECB believes that the technology is not mature to meet its objectives of safety and efficiency. It said:
“[A]ny new technology-based market infrastructure service needs to be mature enough to meet high requirements in terms of safety and efficiency. Against this background, the ECB cannot, at this stage, consider basing its market infrastructure on a DLT solution.”
The ECB launched a joint research project with the Bank of Japan to study the possible use of DLT for market infrastructure services. The objective is to bring greater clarity regarding the impact of new technologies on the global financial ecosystem, as well as to ensure that central banks are adequately prepared.
“The ECB will continue to explore, analyse and test new technologies. In doing so we will ensure that tomorrow’s market infrastructure not only is efficient and innovative but also remains safe and resilient”, it added.