The European Central Bank (ECB) is expanding its distributed ledger technology (DLT) test, which was initiated in April. This second phase of testing will explore new use cases and involve more private financial institutions and three additional central banks.
A total of 48 financial institutions will participate in this new phase. Among them are divisions of major global banks, including ABN AMRO, BNP Paribas, Bank of New York Mellon, HSBC, J.P. Morgan, and Société Générale. The participants for both sets of tests were selected through a call for applicants issued in December.
The new group of participants will conduct tests on wholesale domestic payments within the euro area, various securities-related use cases, and foreign exchange payment-versus-payment transactions between central banks. The latter two tests will involve live settlements using central bank money instead of commercial bank money.
The first round of testing involved 14 participants, including private institutions and central banks. Some of these participants are also part of the second round and focused on delivery-versus-payment settlement of transactions with government bonds. They used three interoperability solutions developed by different European central banks, namely Deutsche Bundesbank’s Trigger Solution, Banca d’Italia’s TIPS Hash-link, and Banque de France’s Full DLT Interoperability.
The tests primarily concentrate on the interaction between the interoperability of DLT transactions and the ECB’s existing TARGET settlement system. They involve real-time gross settlements in the form of payment-versus-payment and delivery-versus-payment.
The test results have wide-ranging applications and can be applied to both cash and tokenized securities. They could also be applicable to central bank digital currency (CBDC), with the French solution specifically designed for CBDC.
The continuation of Project Meridian will also test the same three interoperability systems. The Bank of England, along with the central banks of Belgium, Germany, France, Italy, Lithuania, the Netherlands, Spain, and the Hong Kong Monetary Authority, will participate in this project.
In summary, the ECB is expanding its DLT test to include more participants and explore new use cases. The tests focus on the interoperability of DLT transactions and the ECB’s existing settlement system, with potential applications in central bank digital currency.