Executive Board member of the European Central Bank advocates for establishing a "European ledger", pushing for DLT to improve market fragmentation

European Central Bank (ECB) Executive Board member Piero Cipollone recently discussed the future of blockchain and distributed ledger technology (DLT) at the "Payments of the Future" seminar hosted by the Deutsche Bundesbank. He advocated for the establishment of a "European ledger" that would allow central bank digital currencies, commercial bank digital currencies, and other digital assets to coexist on a single platform, aiming to enhance efficiency, transparency, and facilitate the integration of Europe's digital asset market. However, Cipollone also warned that if these technologies are left to develop freely, they could bring financial risks such as market fragmentation. Therefore, he urged central banks around the world to actively participate in setting standards to ensure the collaborative development of these technologies.

European Market Integration: Technical Collaboration as Key Factor

The European Union has been working towards capital market integration, such as the TARGET2-Securities T2S securities settlement system and shared platforms for central securities depositories across countries. However, due to differing regulatory frameworks in European countries, the European capital market remains fragmented. Cipollone stated that technical integration is the key factor in addressing these fragmentation issues. While electronic ledgers have indeed accelerated financial services, the lack of compatibility among national technical systems has hindered the full connectivity of capital markets, leading to the segregation of asset liquidity.

Note: TARGET2-Securities T2S is the European securities settlement system that provides centralized delivery of central bank funds and payment settlement for all European securities markets.

Blockchain and DLT to Integrate Fragmented European Markets

Cipollone pointed out that as blockchain and Distributed Ledger Technology (DLT) become more prevalent, the issuance, trading, and custody of digital assets are gradually transforming. Future digital assets will no longer rely on centralized management but will operate through DLT, reducing transaction costs and enabling 24/7 market operations. He added that DLT can utilize smart contracts to shorten settlement times, reduce barriers to entry for small and medium-sized enterprises in the capital markets, and promote financial inclusion. According to the chart below, over 60% of EU banks are actively exploring and using DLT solutions, with 22% already implementing and using DLT.

Unified DLT Standards Needed, Advocating for the Establishment of "European Ledger"

However, Cipollone also cautioned that unregulated DLT platforms could exacerbate market fragmentation and weaken the role of central banks in the financial system. He noted that if central banks cannot provide settlement services for digital assets, the market may turn to commercial banks or stablecoin providers, shifting the role of payment settlement reliance to private institutions in the financial system. He also urged central banks to actively participate in setting DLT technical standards to avoid the risks associated with allowing the market to develop freely.

To promote the integration of the European digital capital market, Cipollone advocates for the establishment of a "European Ledger," where central bank digital currencies, commercial bank digital currencies, and other digital assets can "coexist on a single platform." This approach not only enhances market efficiency but also ensures regulatory consistency, shaping the European capital market into a stable, interconnected digital financial system.