September 06, 2017

ECB and Bank of Japan (BoJ) released the outcome of their joint research on distributed ledger technology (DLT) in a report titled, "Payment systems: liquidity saving mechanisms in a distributed ledger environment." This joint research project called “Stella” was launched in December 2016 and it studies the possible use of DLT for financial market infrastructures.

Both BoJ and ECB, in their capacity as providers of market infrastructure services, are exploring DLTs. Their joint research is based on experimental work with the technology and contributes to the ongoing broader debate concerning the usability of DLTs for financial market infrastructures. Depending on technological developments and implementation models, this technology could increase efficiency, for example, by facilitating the automation of recordkeeping and streamlining complex processes. The technology could also lead to improvements in safety and resilience to a range of non-financial risks. The key findings of the joint analysis are as follows:

DLT-based solutions could meet the performance needs of a Real-Time Gross Settlement (RTGS) system. Within the restricted test environment, both average and peak payment traffic consistent with that of BOJ-NET and TARGET2 (the RTGS systems of the two central banks) was processed without difficulty.

DLT performance is affected by network size and distance between nodes.

DLT solutions have the potential to strengthen resilience and reliability.

 

While the test series produced promising results, it should be taken into account that no direct conclusions can be drawn from the test setup with respect to a potential usage in production. Given the relative immaturity of the technology, DLT is not a solution for large-scale applications like BOJ-NET and TARGET2 at this stage of development. A DLT is a set of tools for recording data, such as asset holdings or financial transactions; it allows a network of computers to verify and store updates without a single central management system.

 

Related Link: Joint Report (PDF)

Keywords: Europe, Asia Pacific, Japan, PMI, DLT, BOJ-NET, Target2, ECB, BoJ

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