Settlement of digital assets and wholesale CBDC : Solutions and interoperability approaches explored by the ECB

Abstract

Although the adoption of distributed ledger technology (DLT) is still in a very early phase, its application to the issuance and custody of digital securities is making progress and various platforms and solutions based on a blockchain/DLT infrastructure are emerging. The cash leg of settlement, however, is still not properly solved for this type of infrastructure. For the settlement of digital assets, traditional payment rails are still often used, which hinders the technology from reaching its full potential in areas such as efficiency gains, both in respect of costs and time. To support and prepare for a potentially wider adoption of digital assets, the European Central Bank (ECB) is exploring in 2024 new technologies for wholesale central bank money settlement together with interested market participants. Central bank money systems have centralised architectures designed for single issuers and operators. As central bank money is traditionally used to support the settlement of securities, the question of how to bring it to newly emerging decentralised DLT platforms in an interoperable and efficient manner requires an answer. The ECB, together with three national banks as solution providers, is exploring three different approaches and will likely shed light on several important considerations: is wholesale central bank money necessary on-chain in a tokenised form? What are the advantages and disadvantages of alternative approaches? This paper provides a comparative overview of the explored solutions and describes the assumed interoperability mechanisms between the digital asset and payment systems.