The European Central Bank (ECB) has revealed that it is taking a close look at exploring the potential of blockchain technology for a multitude of services that it helps collaborate with other central banks in Europe.
The European Union’s central bank has, in a report, revealed that it is looking toward new innovations such as blockchain or distributed ledger technology to help run payment and settlement systems.
ECB made the revelation in a consultation report released this week, one which looks to the future of Europe’s financial market infrastructure and Eurosystem’s part in it. The ‘Eurosystem’ is a collective comprising of the European Central Bank and the central banks of all member states who wield the euro as the state currency.
An excerpt from the report [PDF] reads:
[A] number of actors in the [financial] industry are already evaluating the impact that such innovations [the blockchain] may have on the provision of financial services.
The report notes the increased interest with talks, studies and publications highlighting the impact of blockchain technology.
As a part of its vision, the Eurosystem intends to assess their relevance for the different services it provides to the banking communities (payments, securities settlement as well as collateral). This investigation will identify opportunities that these new technologies may provide, as well as the challenges that they create.
The ECB’s willingness to study distributed ledger technology, the very technology that underpins the cryptocurrency Bitcoin with the blockchain is notable due to the central bank being vocal critic of cryptocurrencies. There’s a reason for the ECB’s ‘open’ approach to looking into blockchain technology, however.
A flagship project called Target2-Securities, implemented in June 2015 as a single settlement platform across the Eurosystem is having issues. The timetable employed by the platform to rein in Europe’s largest clearing and settlement providers isn’t going too well after significant technical concerns.
The blockchain, however, brings with it the potential to revolutionize the settlement and post-trade industries. When fully realized, the common consensus is that blockchain could facilitate instant settlement of trades in an efficient and, equally significantly, cheaper way.
Although members of the ECB have recently coincided with the institution’s openness to blockchain technology, there have been public skeptic statements on digital currencies by ECB council members in the past.
In mid-2015, Erkki Liikanen, the head of the bank of Finland, claimed bitcoin’s anonymous nature of transactions as “problematic.” Liikanen further opined that Bitcoin “isn’t subject to the most basic principles governing payment systems,” with a nod to the banking industry’s fervent know-your-customer (KYC) principles.
As a member of the executive board at the ECB, Yves Mersch, also deemed Bitcoin’s volatile exchange rate to cancel out the decentralization principles and benefits of the cryptocurrency, during a speech in mid-2014. Mersch talked up the Euro while noting the absence of a legal framework surrounding bitcoin, bringing the example of the now-defunct Mt. Gox exchange that led to significant losses to creditors. Incidentally, creditors who lost their investments in the exchange are now starting to see their credit reimbursed, according to a recent update.
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