ECB Unveils Plan for Fiat Currency DLT Settlement System

The European Central Bank (ECB) has announced its intention to develop a settlement system for distributed-ledger technology (DLT) transactions using fiat currency. This initiative is part of the ECB's ongoing exploration of digital currency technology, which began in 2023.

The ECB plans a two-stage approach to integrating DLT into its existing settlement infrastructure. The first stage involves linking the new system to the ECB's existing Target settlement system, which ensures the smooth flow of cash, securities, and collateral across Europe. This initial phase will focus on developing a system that can handle DLT-based transactions efficiently and securely.

In the second stage, the ECB will explore a more integrated and long-term solution for settling DLT-based transactions in fiat money, including foreign exchange settlement. This phase will build on the ECB's previous exploratory work, which invited financial market stakeholders to explore the use of DLT for wholesale financial transactions settled in central bank money.

Piero Cipollone, an Executive Board member overseeing the initiative, stated that this development is an important contribution to enhancing European financial market efficiency through innovation. The ECB is committed to staying at the forefront of technological advancements in the financial sector and is dedicated to exploring the potential benefits of DLT for its settlement systems.

The ECB has not yet provided a specific timeline for the implementation of this new settlement system. However, it is expected that the bank will release more information on its plans in the near future, as it continues to evaluate the potential of DLT and its integration into the European financial landscape.