A European Central Bank (ECB) official has introduced the idea of a “European ledger” — a continental unified ledger. Such a blockchain could bring European digital assets and money together in one place, leading to greater efficiency and synergy.
ECB executive board member Piero Cipollone said Europe’s traditional capital markets are fragmented and have unharmonized legislation to overcome, but there is a chance to create a unified platform for digital assets. He called that platform a digital capital markets union.
Investors, central banks could benefit
According to Cipollone, more than 60% of banks in the European Union are exploring or experimenting with distributed ledger technology (DLT), and another 22% already use it. But while DLT provides an opportunity to create financial integration, it does not guarantee it, Cipollone said at a symposium hosted by the German central bank. On the contrary:
“Non-interoperable technological ecosystems in each country – shaped by diverging national regulatory regimes – have created siloed pools of asset liquidity, further entrenching fragmentation.”
DLT is used mostly to issue assets at present, but extending its use to negotiation, settlement and custody on the same platform could reduce costs and allow round-the-clock operations. Investors would benefit from the greater use of DLT, but they are not the only ones. Cipollone said:
“Our primary objective in this evolving landscape is to ensure that central bank money – the safest and most liquid settlement asset – remains a cornerstone of stability, even in a capital market based on tokens and DLT.”
Progress, not perfection
A unified ledger is one where cash and assets exist on the same platform. The concept has been favored by the Bank for International Settlements and central banks and has caught the attention of several institutions, such as SWIFT and JPMorgan. But it may not be a cure-all.
A European ledger would promote financial stability and integration, but also lead to the risk of stifling innovation, especially for narrow use cases. Traditional finance would do better with the flexibility offered by competing DLT platforms as well, Cipollone said.
While those issues are being hashed out, the ECB is continuing to explore ways to settle DLT transactions with central bank money, even though “relying on existing interoperability solutions over the long term could perpetuate inefficiencies.”
