ECB Expands Wholesale DLT Trials with 48 New Participants, Including Major Banks and HKMA

The European Central Bank (ECB) has significantly broadened its exploratory work on distributed ledger technology (DLT) for wholesale transactions in central bank money. On June 21, 2024, the ECB’s Governing Council approved a second wave of participants for its DLT trials, adding 48 private firms from the financial sector and three central banks to the initiative.

This expansion, set to run from July to November 2024, will join the first group of participants who have been testing since May 13. The new cohort includes divisions of global banking giants such as ABN AMRO, BNP Paribas, Bank of New York Mellon, HSBC, J.P. Morgan, and Société Générale, showcasing the strong interest from major financial institutions in the potential of DLT integration with central bank systems.

The second wave of trials will explore a broader scope of use cases, including:

  1. Domestic payments within the euro area with mock settlement
  2. A wide array of securities-related scenarios with both real and mock settlement
  3. Foreign exchange payment-versus-payment (PvP) transactions with other central banks, using mock settlement

Notably, the Hong Kong Monetary Authority (HKMA) will participate in the trials, focusing on cross-border or PvP transactions. This inclusion underscores the growing interest in exploring DLT applications for international settlements.

The trials will also feature 15 market DLT operators, including two DLT Pilot regime candidates: Germany’s 21X and Lithuania’s Axiology. Both offer hybrid trading and settlement systems (DLT TSS), although their applications are still pending approval.

Three Eurosystem interoperability solutions will be tested as part of the trials:

  1. Deutsche Bundesbank’s Trigger Solution
  2. Banca d’Italia’s TIPS Hash-link
  3. Banque de France’s Full DLT Interoperability (specifically designed for CBDC)

These solutions will also be examined in the context of Project Meridian FX, a joint initiative between the Eurosystem, the Bank for International Settlements Innovation Hub London centres, and the Bank of England. The project aims to develop a DLT-capable interoperability mechanism for foreign exchange transactions.

The ECB’s DLT trials involve a mix of real payments with volume limits and simulations. Some tests will explore the use of tokenized deposits for domestic payments, while others will focus on various securities settlement scenarios. The inclusion of payment-versus-payment transactions highlights the potential for DLT in facilitating cross-border settlements.

The expansion of these trials reflects the growing interest in how TARGET Services and DLT platforms could interact, as well as the potential benefits such technologies could bring to the wholesale financial market. With the successful completion of the first experiment in May 2024, which simulated the delivery-versus-payment settlement of government bonds in a secondary market transaction against central bank money, the ECB continues to push forward in exploring the integration of DLT with existing financial infrastructure.