Blockchain technology is becoming the new norm among financial institutions all over the world. The European Central Bank is joining forces with the Bank of Japan to explore a new DLT initiative for market infrastructure– quite an intriguing development, although it was only a matter of time until the ECB started paying attention to the blockchain.

Bank of Japan And ECB Form A DLT Coalition

The news came as quite a surprise during this week’s speech by the ECB. Executive Board member Yves Mersch told the world that the Bank is considering putting their entire market infrastructure on distributed ledger technology. However, they are exploring how this technology can be used moving forward, while helping it mature at the same time.

To do so, they are partnering with the Bank of Japan to see what the possibilities may be in the long run. Revamping the Target2 real-time gross settlement system can be achieved through DLT, as well as upgrading the Target2-Securities platform. It is good to see the ECB pay attention to the blockchain, even if it is not in the capacity that a lot of people would like to see.

It is evident that distributed ledger technology will need a lot more research and development before it can replace traditional financial market infrastructure. The collaboration between the ECB and the Bank of Japan is a significant step in the right direction towards achieving that goal. The future of private and permissioned blockchains, however, remains a big question mark, and proprietary solutions may not be the best option.

Moreover, this new collaboration will also focus on interfacing with DLT-based settlement services not offered by the ECB itself. In doing so, the central bank acknowledges that they will not be the only provider of DLT in the financial sector, and interoperability with other solutions needs to be guaranteed from day one.

Yves Mersch continued this speech by adding the following:

“This work can help define how new technologies can change the global financial ecosystem of today and ensure that central banks are adequately prepared. We are on a journey which could radically alter the financial ecosystem as we know it. The ECB is committed to being part of this journey.”

Distributed ledger technology will transform the banking sector as we know it over the coming years. It is true that more R&D is needed before this can even become a possibility, but it is good to see some of the world’s largest banks focus on the opportunities. This collaborative research is expected to be unveiled sometime in 2017, but no official date has been announced yet.

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