How to Advance TARGET Services with DLT in Central Bank Money

TL;DR

The Eurosystem is advancing TARGET services by integrating distributed ledger technology (DLT) for settling transactions in central bank money. This initiative, consisting of two tracks, Pontes and Appia, aims to enhance the European financial ecosystem's efficiency and integration. Pontes focuses on short-term implementation with a pilot phase, while Appia explores long-term solutions for a seamless financial infrastructure.

Transcript

everyone and welcome to this ECB focus session. Today's topic is on advancing the target services with the DT transactions in central bank money. My name is Alien and I'm here with a fantastic team of ECB colleagues and we will try to guide you through today's event. It's going to be one of those uh speedy uh typical focus sessions events where we'... Read More

Key Insights

• The Eurosystem's strategy involves two tracks: Pontes for short-term implementation and Appia for long-term integration.
• Pontes will pilot euro central bank money settlement by linking market DLT platforms with TARGET services.
• Appia aims to create a long-term integrated financial ecosystem using DLT, with public and private collaboration.
• The exploratory work in 2024 involved 64 participants and tested three interoperability solutions for DLT transactions.
• The initiative supports EU policies and aims to reduce fragmentation in European financial markets.
• Central bank money is crucial for scaling DLT solutions, as it provides a risk-free settlement asset.
• The pilot phase will focus on euro transactions, with plans to explore multicurrency designs in the future.
• The ECB will engage with market stakeholders through a market contact group to refine requirements and implementation.

Questions & Answers

Q: How will the Eurosystem integrate DLT into TARGET services?

The Eurosystem plans to integrate DLT into TARGET services through a two-track approach: Pontes and Appia. Pontes will focus on short-term implementation, offering a pilot phase that links market DLT platforms with TARGET services for euro central bank money settlement. Appia will explore long-term solutions for a more integrated financial ecosystem, involving collaboration with public and private stakeholders.

Q: What were the findings from the Eurosystem's exploratory work on DLT?

The Eurosystem's exploratory work in 2024 involved 64 participants who tested three interoperability solutions for DLT transactions. The findings emphasized the importance of central bank money as a risk-free settlement asset and highlighted the potential of DLT to address fragmentation in European financial markets. The work also demonstrated strong market interest and the need for continued exploration of DLT solutions.

Q: What is the focus of the Pontes pilot phase?

The Pontes pilot phase will focus on providing a short-term solution for euro central bank money settlement by linking market DLT platforms with TARGET services. The pilot aims to test the interoperability of these platforms and refine the requirements for a more integrated financial infrastructure. It will initially focus on euro transactions, with plans to explore multicurrency designs in the future.

Q: How does the Appia track differ from Pontes?

While Pontes focuses on short-term implementation and piloting euro central bank money settlement, Appia aims to explore long-term solutions for an integrated financial ecosystem using DLT. Appia will involve collaboration with public and private stakeholders and consider the international dimension of financial markets. The goal is to create a more seamless and efficient infrastructure that supports broader EU policy objectives.

Q: Why is central bank money important for DLT solutions?

Central bank money is crucial for DLT solutions as it provides a risk-free settlement asset, which is essential for scaling these solutions and ensuring their reliability. The absence of central bank money in DLT ecosystems can impede growth and limit the potential benefits of these technologies. By offering central bank money settlement, the Eurosystem aims to support market innovation and enhance the efficiency and integration of European financial markets.

Q: What are the potential benefits of integrating DLT into financial markets?

Integrating DLT into financial markets can enhance efficiency, reduce fragmentation, and improve the overall integration of European markets. DLT offers the potential to redesign processes and practices, leading to more seamless and automated transactions. This can support broader EU policy objectives, such as the Capital Markets Union, and contribute to the international role of the euro by making European markets more attractive and competitive.

Q: What role will stakeholders play in the Pontes and Appia initiatives?

Stakeholders will play a crucial role in the Pontes and Appia initiatives by participating in market contact groups and providing input on the requirements and implementation of DLT solutions. The ECB plans to engage with market participants through structured interactions, workshops, and public-private partnerships to ensure that the solutions developed meet the needs of the financial ecosystem and support broader EU policy objectives.

Q: What are the next steps for the Eurosystem's DLT initiatives?

The next steps for the Eurosystem's DLT initiatives include finalizing the requirements for the Pontes pilot phase, engaging with stakeholders through a market contact group, and exploring enhancements for a more integrated financial infrastructure. For Appia, the ECB plans to publish a launch paper in early 2026, outlining the foundational principles and objectives for a long-term integrated ecosystem. Ongoing collaboration with public and private stakeholders will be key to advancing both initiatives.

Summary & Key Takeaways

• The Eurosystem is enhancing TARGET services by integrating DLT to settle transactions in central bank money. This initiative includes two tracks: Pontes, focusing on short-term implementation with a pilot phase, and Appia, which explores long-term solutions for a seamless financial infrastructure. The initiative supports EU policies and aims to enhance market integration and efficiency.

• The exploratory work conducted in 2024 involved 64 participants and tested three interoperability solutions for DLT transactions. The findings highlighted the importance of central bank money for scaling DLT solutions and reducing fragmentation in European financial markets.

• Pontes will pilot euro central bank money settlement by linking market DLT platforms with TARGET services. The pilot phase will focus on euro transactions, with plans to explore multicurrency designs in the future. The ECB will engage with market stakeholders through a market contact group to refine requirements and implementation.