ECB Investigates Distributed Ledger Technology For Interbank Settlements
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After detailing the numerous advantages of DLT, Panetta also emphasized several disadvantages and argued against developing a new wholesale settlement system based on DLT. Alternatively, he suggested expanding on the ECB's current infrastructure.
Wholesale CBDC - New DLT-Based Digital Currency
According to Panetta, wholesale central bank digital currencies (CBDCs), which are often presented as a new type of DLT-based central bank digital currency that can only be used to settle interbank transactions, have been around for decades.
On Monday, Panetta remarked that banks in the European Union (EU) could already settle large-scale digital payments using the ECB's TARGET Services on a centralized ledger.
100 Nations to Investigate Wholesale CBDC
In 2021, the market value of cryptocurrencies hit around $3 trillion, which pushed central banks across the globe to consider how to stay awake with the crypto industry and the DLT technology that supports it. Wholesale CBDCs are consumer and payments-focused digital currencies, and around 100 nations are investigating them. Additionally, a two-year examination of a retail CBDC is now proceeding at the ECB.
According to Panetta, DLT can allow for the immediate settlement of transactions involving a greater variety of assets around-the-clock with a wide range of participants, perhaps with non-financial organizations. Despite claiming that DLT may be more secure than current systems, Panetta also listed certain disadvantages.
Effectiveness and Scalability of PoW
He cited the ongoing discussion about the effectiveness and scalability of the Proof-of-Work (PoW) consensus mechanism-based Bitcoin network and the system's significant energy requirements' environmental effects. Panetta claims that because Bitcoin's distributed ledger is open-source and anyone can participate, it may still compare badly to centralized infrastructures.
Panetta added, "Importantly, the governance of major DLT technologies and networks is dominated by actors who are either unknown or based outside Europe, which raises concerns about strategic autonomy."