ECB’s Dual Approach to Financial Transactions
On Tuesday, the European Central Bank (ECB) Governing Council greenlit a dual approach aimed at integrating central bank funds with distributed ledger technology (DLT) for financial transactions. The immediate initiative, known as “Pontes,” is scheduled to connect DLT systems with the Eurosystem TARGET services by the year 2026. This initiative is designed to facilitate seamless transactions involving cash, securities, and collateral throughout Europe.
Pontes Pilot and DLT Trials
In preparation for the Pontes pilot set to commence in the third quarter of 2026, ECB executives will entertain requests for DLT-based trials and experiments. Piero Cipollone, a member of the ECB’s Executive Board, acknowledged the burgeoning landscape of DLT and tokenization, suggesting they could revolutionize how financial transactions are settled. He emphasized that this move aligns with the Eurosystem’s dedication to fostering innovation while maintaining high safety and efficiency standards in financial market infrastructures.
Long-Term Initiative: Appia
Alongside the short-term strategy, the ECB has unveiled a comprehensive long-term initiative called “Appia.” This will explore further DLT applications and foster collaborations with both public and private sector partners on a global scale. Potential areas of focus include international operations such as foreign exchange settlements, reflecting the ECB’s commitment to engaging in worldwide initiatives.
Future of Digital Euro and Market Efficiency
While the ECB has not yet detailed the specific long-term strategy, it remains focused on enhancing the efficiency and competitiveness of existing financial markets for securities and payments without compromising security. In a related timeline, Cipollone mentioned that the ECB aims to wrap up the digital euro preparation process by October 2025. However, skepticism persists among lawmakers regarding the feasibility of the digital euro following a notable outage of the TARGET 2 (T2) payment infrastructure earlier this year.
Research and Technological Advancements
The ECB has been pioneering research into new technologies, including DLT, between May and November 2024, involving 64 participants and over 50 experiments. Cipollone noted that the new approaches of Pontes and Appia would build upon these technological advancements, which have garnered increasing interest within the finance community.
