A member of the Executive Board of the European Central Bank has said that distributed ledger technologies (DLTs) have the potential to transform the securities and payments industry and that the ECB is exploring its potential use cases.

Speaking at Eurosystem community session at Sibos, Geneva, Yves Mersch, Member of the Executive Board of the ECB, highlighted the potential of DLTs, while emphasizing that the technology is at a very nascent stage and its various aspects must be carefully evaluated before considering its mass adoption. Mersch said:

“[D]istributed ledger technology (DLT) has the potential to fundamentally change securities and payments business. However, this technology is still in its infancy. There are substantial functional, operational, governance and legal aspects which need to be carefully looked at before thinking about possible mass adoption.”

He added that given the state of the technology, the Eurosystem cannot consider using DLT in the market infrastructure. However, the bank is exploring whether the technology’s possible future use could bring benefits, Mersch said.

He further warned that increasing number of different DLT approaches could be detrimental to financial market integration. Mersch explained:

“A multitude of different DLT approaches and models could jeopardise financial market integration by increasing fragmentation. Undue periods of market consolidation and standardization could hamper the smooth functioning of a Single Payments Area. We could be in a situation similar to the one that lead to the establishment of T2S.”

Pointing out the next steps in the evolution of the Eurosystem’s market infrastructure, he said that the ECB is currently focusing on the consolidation of TARGET2 and TARGET2-Securities (T2S); settlement services to support instant payments; and a Eurosystem collateral management system.

“Now, these strategic reflections have entered into the next phase. Last week, the Eurosystem decided to launch the investigation phase into these three components. The aim is to ascertain whether there is a business case for each, to agree with the users on the scope of services and to prepare a cost-benefit analysis”, he added.