In May the European Central Bank tested the settlement of securities using distributed ledger technology (DLT), and a second wave of tests was recently launched. „The response to this second round of testing is huge. Around 60 market participants have registered. This shows that banks and clearing houses want to actively shape the future of securities settlement,“ said Anne-Sophie Gógl from KPMG in an interview with Börsen-Zeitung.

The list of participants ranges from commercial banks and central banks to blockchain-native market infrastructure operators such as 21X. „I think the fact that a fintech like 21X is involved is very positive. Providers of DLT market infrastructures complete the mission picture in which genuine and regulated secondary market trading of assets can take place,“ says KPMG partner Jens Siebert. As the DLT pilot regime has also recently been strengthened by ESMA and the EU Commission, and the Mica regulation will come into force at the beginning of 2025, Europe now has a good opportunity to be at the forefront of innovation and its commercial implementation in the market.

The two KPMG experts say that we are now at the decisive threshold as to whether scaled market infrastructures can be created from proof of concepts. Both are optimistic and, in addition to the collaborations as part of the ECB tests, point out that there are initiatives, such as the joint approach of Deutsche Börse, Euroclear and the DTCC, which are committed to interoperable standards, and are also planning to establish an association for this purpose. The Swiat blockchain initiative launched by LBBW, Standard Chartered and DekaBank is another example of collaboration between market participants in the development of scalable blockchain solutions.

„The wholesale version of the digital euro would be the catalyst for a seamless ecosystem of digital securities. The solutions trialled by the Bundesbank and Banca d'Italia would always use interfaces that connect to the TARGET system or the TIPS infrastructure for instant payments. The Banque de France is providing a pure DLT solution, which offers advantages in the long term,“ says Anne-Sophie Gógl.

Gógl reports that the Bundesbank trigger solution and the Italian set-up are in particular demand in the tests – among other things, it is less work involved to dock there. As far as the performance of DLT infrastructures is concerned, Gógl and Siebert refer to what DekaBank has set up via its spin-off Swiat. The transaction performance on this DLT can fulfil market requirements, and blockchains such as Solana and Polygon are also becoming increasingly suitable for tokenised assets, as would be the case in the traditional financial industry. The Bank for International Settlements (BIS) is already working on the interoperability of various blockchains in cross-border securities settlement, notes Gógl. There are also players such as Swift, which makes blockchain protocols connectable in the background.

The development of the Retail Central Bank Digital Currency (CBDC), the introduction of which has not yet been officially decided, is much more complex, partly because it has ended up in the political sphere as the „digital euro“ project, explains Gógl. The legislative initiative for this was included in the package on the euro as a legal tender, she explains. This was intended, among other things, to strengthen cash – until now, things such as the obligation to accept cash had only been regulated on the basis of an ECJ judgment.

As the digital euro would initially only be a new means of payment, but its introduction would involve an additional payment system and would affect all citizens, it was right to place the decision on its introduction and organisation in the hands of Brussels.

A discussion about the usefulness of a retail CBDC is almost pointless in the current cacophony because fact-based contributions are ignored in populist discussions – being against it is considered chic by some interest groups. For Gógl, the digital euro is in line with the mandate to provide cash. This must be made available to citizens and be unconditionally usable – and where the use of cash declines, the digital equivalent will step in.

As far as the use cases are concerned, Siebert says that it is not the ECB's job to define them. This could be done by private banks, for example, which can continue to access the central bank's backend.

The two KPMG experts are characterised by great confidence in the players at the ECB. The course has been set well and an introduction can take place iteratively, i.e. in a gradual approach to the project, says Siebert. „The ECB will only decide on the technical implementation of the digital euro in the rulebook at the end of the year. As the tenders for the platform infrastructure have already been issued, it is already clear that the Eurosystem will invest up to 1 billion euros in this alone.“