ECB Exploring Distributed Ledger Technology for Interbank Settlements: Panetta

A system that builds on existing interbank settlement infrastructure instead of one based entirely on DLT can be implemented "more rapidly" according to ECB executive board member Fabio Panetta.

AccessTimeIconSep 26, 2022 at 11:02 a.m. UTC
Updated May 11, 2023 at 3:34 p.m. UTC

The European Central Bank (ECB) is looking at "the potential" of distributed ledger technology (DLT) in improving the efficiency of interbank settlements, said Fabio Panetta, a member of the executive board.

After listing the many benefits of DLT, Panetta also highlighted some drawbacks, and made a case for a system that builds on the ECB's existing infrastructure for wholesale settlements instead of building a new one based entirely on DLT.

A distributed ledger is a decentralized database that is maintained and updated independently by individual participants in a large network. Wholesale central bank digital currencies (CBDC), which are typically framed as a new type of DLT-based central bank digital currency that can be used exclusively for settling interbank transfers, have actually existed "for decades" according to Panetta.

"But wholesale CBDC is not synonymous with DLT, as it can be based on any digital technology," Panetta, who is a vocal critic of crypto, said during a Monday speech. In the European Union, banks can already settle wholesale digital transactions using the ECB's own TARGET Services on a centralized ledger, he said.

Cryptocurrency markets reached a market capitalization of around $3 trillion in 2021, which prompted central banks around the world to consider how to keep up with the crypto world and the DLT technology that backs it. Around 100 countries around the world are exploring retail CBDCs, which are consumer and payments-focused digital currencies, while The Bahamas and then Nigeria became the first countries to issue them. The ECB is also in the middle of its own two-year investigation into a retail CBDC.

However, wholesale CBDC experiments have been progressing faster – something Panetta attributes to the "narrower set of stakeholders" involved in interbank settlements compared to retail payments. France recently kicked off the second stage of a wholesale CBDC experiment while numerous monetary authorities around the world are working with the Bank for International Settlements (an association of central banks) on multiple wholesale CBDC experiments.

Panetta says DLT can enable the instant settlement of transactions in a wider range of assets around the clock "with a broader spectrum of participants, potentially including non-financial corporations." Although he said DLT could also be more secure than existing systems, Panetta outlined some drawbacks as well.

He pointed to the ongoing debate around the efficiency and scalability of the Bitcoin network powered by the proof-of-work consensus mechanism, and the environmental implications of the large amounts of energy needed to power the system. Bitcoin's distributed ledger is permissionless – meaning anyone can participate – which "may still compare unfavorably" to centralized infrastructures according to Panetta.

"Importantly, the governance of major DLT technologies and networks is dominated by actors who are either unknown or based outside Europe, which raises concerns about strategic autonomy," Panetta added.

Despite these drawbacks, Panetta says the ECB must be prepared for a scenario where market players "adopt DLT" for wholesale payments as well as securities settlement. But a system that builds on the ECB's existing TARGET Services could be "implemented more rapidly" than a system "based entirely" on DLT, Panetta said.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.