European central banks are intensifying their efforts to use distributed ledger technology (DLT), the foundation of the blockchain, in central bank money payments.

Banca d’Italia and Deutsche Bundesbank, the central banks of Italy and Germany, have teamed up to settle central bank money from DLT-based securities exchanges.

The official announcement emphasized that the main objective of the joint workshop was not to use DLT as a replacement for conventional systems. Instead, the initiative aims to complement existing central bank cash settlement operations with a DLT-based, asset-linked programmable trigger mechanism, such as encrypting a security and paying for cash using conventional payment systems.

The proposed system would minimize counterparty risk for both parties by maintaining a balance between delivery and payment, the announcement said. The programmable trigger will complement the digital euro and act as a technical bridge between the existing payment systems used by the urosystem’s central banks and the DLT-based chemistry for processing crypto assets.

DLT has the potential to develop new products and services, create additional sources of income, reduce operating costs and make organizational structures more efficient, said the Italian central bank governor Ignazio Visco. He emphasized that the introduction of DLT at the infrastructure level in traditional markets will take time “because in-depth research and cost and risk assessments are required”.

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The President of the Deutsche Bundesbank, Jens Weidmann, said: “If market participants want to take advantage of new technologies such as DLT for processing crypto assets, the central banks should support this by allowing the required amount to be paid in secure central bank money,” said the Deutsche Bundesbank President Jens Weidmann. He added:

“The proven trigger solution can meet the needs of the market well and hold central bank money in a system operated by central banks. Compared to the wholesale central bank creating digital currencies, a trigger solution can work in a much shorter timeframe. “

In March 2021, Deutsche Börse, the Deutsche Bundesbank and the German tax authorities carried out a pilot test with Citibank, Barclays, Goldman Sachs, Commerzbank, DZ Bank and Société Générale in order to combine traditional finance with technology-based ledgers System and trial trading of securities on the primary and secondary market as part of the pilot project.