TL; DR Breakdown
- European central banks want to use distributed ledger technology to settle payments.
- An official statement said it would not replace the standard payment system.
- The pilot test was conducted in March.
The crypto sector is gradually undergoing massive growth as more individuals continue to enter the market. With more people and entities turning to crypto, the need for distributed ledger technology has continued to grow. In a new update, Central banks across Europe are gearing up in their pursuit to use distributed ledger technology as a means to settle cash payments. Central banks of Italy and Germany have announced a partnership to work on the usage of DLT to facilitate cash payments.
Distributed ledger technology and standard payment systems
According to the official statement from both parties, they stressed that the adoption of a distributed ledger technology is not to replace the standard payment system. However, the announcements stressed that the DLT system would complement the previous payment system. This means that there would be able to program a mechanism that would bridge assets on the distributed ledger technology like securities with cash which can then be settled using the standard payment system.
The announcement also mentioned that the new DLT system would help reduce the risk for both parties involved in a transaction. The programmed trigger will work alongside the euro and serve as the connector between the European payment system and the distributed ledger technology.
Pilot test carried out in March
In a statement by the Governor of Italy’s Central bank, Ignazio Visco, the distributed ledger technology has so much potential, including cost operations, among other things. He also mentioned that developers could debut new products and services, and investments can organize their structure effectively using the DLT system.
Ignazio also stressed that he knows that a time adoption of the distributed ledger technology in the market is not something that should be expected to happen now. This is because he understands that most entities might want a full investigation into how the system works while accessing the cost and risk behind it.
The President of the Central bank of Germany, Jens Weidmann, believes that the Central bank needs to enable the payment system to secure day-to-day payments so that participants can benefit from its potential. Germanys Finance Agency and a list of banks, including Deutsche Boerse, recently partnered with some investments to carry out a pilot test on distributed ledger technology.
The pilot test, which included Goldman Sachs, Dz banks, Citibank, and others, was carried out to test the bridging of DLT with the traditional payment system. As part of the test carried out in March, the GFA issued a bond of 10 years using the distributed ledger technology.