In February the European Central Bank announced plans for a two track Eurosystem solution to enable the wholesale settlement of DLT transactions in central bank money. Now the ECB has decided that the short term solution, Pontes, will only be available for pilots by the end of Q3 2026, which will disappoint many in the industry as they might consider this medium term. Pontes is Latin for bridges. (This article has been updated following the formal announcement).
However, given the lengthy wait, a key concession is that the central bank will consider proposals for further trials and experiments in the interim.
Last year the ECB ran a successful exploration that involved three separate solutions used by 64 institutional participants and involving €1.6 billion in settlements. Some had hoped that the pilot would be allowed to continue in order to avoid losing momentum. Now it seems there will be a roughly two year gap between the two initiatives. One industry participant highlighted that the delay is even longer given live trials were performed with Germany’s Trigger solution in early 2021. This wait will prompt questions about interim arrangements.
The short term approach is expected to involve Germany’s Trigger solution given this was used for the majority of trial transactions, with the report stating that industry expressed a preference for a single solution.
The longer term wCBDC approach
The longer term solution, Appia (the road), will involve a wholesale CBDC. It will also incorporate an international payment aspect. This one is more exploratory and there has been discussion of a potential Europe-wide Unified ledger that might fit in with Europe’s Savings and Investment Union plans. The ECB report states that market participants have differing views on whether to have an interoperability solution, such as the wholesale CBDC used during the trials, or the more expansive unified ledger.
We asked the Deutsche Börse Group for a comment on the timing, given its extensive involvement in DLT through its D7 issuance platform and its role in HQLAᵡ. The response focused on the longer term solution. “We welcome the confirmation by the ECB to make a permanent solution for a wholesale CBDC available. Deutsche Börse Group and Clearstream are fully committed to engaging with the new setup at the earliest opportunity,” said Jens Hachmeister, Head of Issuer Services & New Digital Markets at Clearstream.
Meanwhile, the ECB has now published a report on the last year’s wholesale DLT settlement trials.
Will other on-chain settlement options fill the gap?
Several alternatives might be considered by market participants. Many central banks, and especially the ECB, are not keen on stablecoins. Yet European institutions are keen to avoid losing their early advantage as the United States is now pushing forward with tokenization initiatives.
The lack of a central bank option for settlement could encourage the use of stablecoins, even though institutions prefer central bank money. Beyond stablecoins, other options might be considered.
Another alternative is tokenized deposits, but there are few of them in Europe, and single bank tokenized deposits are not an ideal solution. The question is whether a multi bank tokenized deposit solution such as Germany’s Commercial Bank Money Token could go live any faster than the Eurosystem option.
A third path might be an integration of one of the live multi-bank wholesale systems – such as Fnality or maybe Partior. But they’re not likely to get fast approval. Even if they did, would the effort be worthwhile given the relatively short window before central bank solutions arrive?
The simplest solution is to use what’s currently available.
We’ve also published an opinion piece on this topic from DekaBank’s Michael J. Cyrus.
