Updated status of ECB's temporary solution for wholesale distributed ledger technology (DLT) settlement: Implementation to stretch beyond 12 months
The European Central Bank (ECB) has unveiled a two-pronged strategy to facilitate the settlement of wholesale distributed ledger technology (DLT) transactions in central bank money. This strategy, dubbed the "Pontes" and "Appia" tracks, aims to support innovation while maintaining safety and efficiency in financial market infrastructures.
The immediate solution, Pontes, is scheduled for launch by 2026. It will connect existing DLT platforms directly with Eurosystem TARGET services, enabling the secure and efficient settlement of wholesale transactions in central bank money across Europe. This approach leverages the current infrastructure to ensure the free flow of cash, securities, and collateral during the interim period before more integrated solutions are ready.
In parallel, the ECB is developing the long-term track, Appia. This track is aimed at creating fully integrated, innovative DLT-based financial ecosystems that can operate globally. The Appia track will explore tokenized assets and cross-border operations, such as foreign exchange settlements, on DLT platforms. It will also study various DLT solutions and collaborate with public and private stakeholders to facilitate broader ecosystem integration.
Market participants may engage in trials, explore central bank digital currencies (CBDCs), or test alternative settlement links between DLT and traditional RTGS systems during this transition. The ECB will also consider proposals for further trials and experiments in the interim.
The ECB's dual-track strategy comes as the bank expresses reluctance towards stablecoins. The short-term solution, Pontes, will only be available for pilots by the end of Q3 2026. In the meantime, institutions prefer central bank money over stablecoins for settlement.
Pontes is Latin for bridges, symbolising the ECB's aim to bridge the gap between traditional and digital financial systems. The ECB's announcement follows a successful exploration involving three separate solutions, 64 institutional participants, and €1.6 billion in settlements last year.
The lack of a central bank option for settlement could potentially encourage the use of stablecoins. However, the ECB's dual-track approach aims to provide a secure and efficient alternative, ensuring the European financial market maintains its early advantage as the United States pushes forward with tokenization initiatives.
References: [1] European Central Bank. (2023). Two-track plan for settling wholesale DLT transactions in central bank money. [2] Cyrus, M. J. (2023). Opinion: The ECB's two-track approach to DLT settlements. [3] DekaBank. (2023). Report on the ECB's wholesale DLT settlement trials.
- The ECB's short-term strategy, Pontes, targets the secure and efficient settlement of wholesale transactions using central bank digital currencies (CBDCs) within existing DLT platforms, bridging the gap between traditional and digital financial systems.
- The long-term track, Appia, is designed to create globally operating, innovative DLT-based financial ecosystems, exploring cross-border operations such as foreign exchange settlements and tokenized assets, while fostering collaboration with public and private stakeholders.
- As the bank expresses reservations towards stablecoins, market participants may engage in trials, test alternative settlement links between DLT and traditional RTGS systems, or consider central bank digital currencies during this transition.
- The ECB's dual-track strategy aims to provide a secure and efficient alternative to stablecoins, ensuring the European financial market maintains its early advantage over the accelerating tokenization initiatives in the United States.
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