On February 20, 2025, the European Central Bank (ECB) announced the extension of its plan to enable transactions recorded on distributed ledger technology (DLT) using central bank money.
The expansion is the result of the Eurosystem’s thorough exploratory research, which was conducted between May and November 2024 with more than 64 participants. These included central banks, financial market players, and operators of DLT platforms.
ECB DLT Expansion: Test to Implementation
During the testing period, the ECB conducted more than 50 trials and experiments, testing various aspects of DLT settlement in central bank money.
This allowed them to gain insights into DLT’s interaction with traditional payment systems and its potential to improve transaction efficiency.
Following the research, the Governing Council plans to adopt a two-track approach. The first track aims to create and use a safe and effective platform. This would settle DLT-based transactions in central bank money by connecting it to TARGET Services.
This will ensure the change to DLT does not compromise the stability and security of present systems.
The second track looks at a more all-encompassing, long-term solution for transaction settling using DLT. It includes global operations elements like foreign exchange settlements, aiming to increase the spectrum of DLT applications.
To assess several use scenarios, experiments incorporating real settlements in central bank money have also been conducted alongside simulated settlements.
These demonstrate the possibility of a technological bridge between blockchain technology and traditional payment systems without incorporating a central bank digital currency (CBDC).
Value of DLT for Digital Asset Markets
This project could play a crucial role in creating an integrated European market for digital assets, aligning with the ECB’s broader aim of fostering a digital capital markets union.
With the help of DLT-based transactions in central bank money, the Eurosystem might improve transparency and efficiency. This may foster more confidence among market players, strengthening the market’s integrity.
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