26 September, 2022
The European Central Bank (ECB) is exploring blockchain-based interbank settlements, said Fabio Panetta, a member of the regulator's executive board, according to Reuters. Consideration of this issue is caused by the need to maintain control over money, in the event that market participants begin to switch to distributed ledger technology (DLT).
Blockchain can allow market participants to verify and store information about transactions on the network, eliminating the intermediary of the central bank. And so the ECB is currently considering how banks can be allowed to conduct interbank transactions and securities settlement using DLT technology and stablecoins in a way that does not lead to "fragmentation of trade and liquidity."
Also, the ECB fears that allowing third-party issuers to issue stablecoins for such settlements may jeopardize monetary sovereignty. As a possible solution to these problems, the ECB could launch a bridge between private sector blockchain platforms and its own Target 2 settlement system, the official said.
This could make central bank money available on these private platforms or open up the possibility of issuing native tokens pegged to the value of fiat currencies on them, the ECB spokesman said.
In mid-May of this year, Panetta announced the possibility of completing tests of the digital euro by 2026. The European Central Bank has stepped up the development of a centralized digital currency amid rising financial instability.