ECB should have wholesale DLT settlements when market wants it, official says

Executive Board member Fabio Panetta says it would jeopardize financial stability if the ECB is not prepared to use distributed edge technology , but that's the best he can say for that.

The European Central Bank (ECB) needs a central bank digital currency (CBDC) because market participants expect it, ECB executive board member Fabio Panetta told a banking symposium in Germany on Monday. Two options for wholesale CBDCs are currently under consideration.

The wholesale CBDC is not a new concept, Panetta said. The Eurosystem's Target2 uses a centralized CBDC as such. Target2 is a real-time gross settlement system in use since 2017 that also provides a securities settlement platform and instant payment settlement service. Despite this, banks and financial market institutions continue to explore distributed ledger technology (DLT), Panetta said.

Digitalization of finance has expanded payment options, with emerging fintechs, big tech and cryptos causing disruption, says Fabio Panetta, member of the management board of the @bundesbank. We must preserve an anchor of stability for the monetary and payment systems.

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If Target2 is difficult to use, market participants will turn to commercial bank money and stablecoins, Panetta continued. This would undermine financial stability by fragmenting trade and liquidity and removing central bank money from the process. Also, stablecoins "are stable in name only".

Related: European Central Bank betting on CBDCs over BTC for cross-border payments

While he saw the potential of DLT to...