In a new report, the Deutsche Bundesbank has explored the potential of distributed ledger technology (DLT) for the financial sector.

The report, available only in German, focuses chiefly on the potential impact of the technology on payments and securities settlement.

"Potentially, DLT offers a number of benefits on account of the distributed storage of data, which can eliminate reconciliation processes associated with complex work-sharing value added chains," the bank’s payment specialists write, adding that DLT might also improve transparency and potentially offer superior protection against cyber attacks.

The authors see little potential of DLT to be implemented in the field of individual and retail payments, particularly in the euro area, where they believe that systems have been already optimised for fast transfers and require a minimum of reconciliation. They, however, see more potential for DLT in payments beyond the Euro area, where transactions often take longer as more intermediaries are involved.

In the field of securities settlement, DLT could offer some benefits as it could reduce the process to few steps.

“Given the complexity, arduous reconciliation and error-prone nature of manual processes, this is an area where DLT could offer some benefits, as it has the technical capability to reduce securities settlement to just a few process steps”, the bank said.

In addition, the authors also explored the concept of central bank issued digital currency (CBDC). They said:

“The implications of central bank-issued digital currency for monetary policy and financial stability and for the structure and business models of banks are hard to fathom… there is currently no realistic prospect of central bank-issued digital currency being rolled out in the foreseeable future.”

The Deutsche Bundesbank said that it has been exploring DLT owing to a special statutory mandate. As part of its analysis, it has been running trials in conjunction with Deutsche Börse on a jointly developed blockchain prototype.

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