Big banks rush in to test ECB’s wholesale distributed ledger tech

The European Central Bank (ECB) is expanding the distributed ledger technology (DLT) test it initiated in April. This second phase of testing will examine new use cases with an influx of private financial institutions and three more central banks.

Forty-eight financial institutions will participate in the new phase. These include divisions of many of the world’s biggest banks, such as ABN AMRO, BNP Paribas, Bank of New York Mellon, HSBC, J.P. Morgan and Société Générale. Participants in both sets of tests were recruited through a call for applicants issued in December.

Testing new and old tech together

The new cadre will engage in tests of wholesale domestic payments within the euro area, a variety of securities-related use cases and foreign exchange payment-versus-payment transactions among central banks. The second two tests will involve live settlements using central bank money, rather than commercial bank money.

The first wave of testing involved 14 participants, including private institutions and central banks. Some of those are in the second wave as well, and looked at delivery-versus-payment settlement of transactions with government bonds that used three interoperability solutions developed by different European central banks — Deutsche Bundesbank’s Trigger Solution, Banca d’Italia’s TIPS Hash-link and Banque de France’s Full DLT Interoperability.

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Payment-versus-payment and delivery-versus-payment are forms of real-time gross settlement. The tests concentrate on the interaction between the interoperability of DLT transactions and the ECB’s existing TARGET settlement system.

Test results have broad applications

The tests use cash and tokenized securities and could be applied to central bank digital currency (CBDC) as well. Only the French solution was devised specifically for CBDC.

The same three interoperability systems will be tested in a continuation of Project Meridian. The Bank of England is taking part in that project. It also joins the central banks of Belgium, Germany, France, Italy, Lithuania, the Netherlands and Spain and the Hong Kong Monetary Authority.

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