Angelini: DLT potential needs central bank money for safety
Paolo Angelini, Deputy Governor of the Bank of Italy, discussed the future of digital finance, expressing skepticism about fully decentralized DLTs. He emphasized the critical need for central bank money in DLT-based financial market infrastructures to ensure safety and efficiency.
The Quiet Digital Revolution
The digital transformation of financial market infrastructures began decades ago, starting with the dematerialization of securities in the sixties.
This progressed to digital trading platforms in the eighties and the revolution of wholesale payments with real-time gross settlement systems (RTGS) in the nineties, enhancing security and efficiency through features like delivery versus payment (DVP).
Today, nearly all financial assets are digital, with systems like TARGET2 settling 2.5 trillion euro daily.
The Eurosystem has further advanced with TARGET Instant Payment Settlement (TIPS) in 2018, enabling instant, 24/7 fund transfers.
Ongoing projects include the consolidation of TARGET2 and T2S platforms, which will modernize services with the ISO 20022 standard, and the Eurosystem Collateral Management System (ECMS), designed to unify fragmented collateral management across the euro area.
DLT's Promise and Central Bank Imperatives
The debate on Distributed Ledger Technologies (DLTs) centers on two views: radical decentralization (DeFi) or efficiency improvements within existing frameworks.
Deputy Governor Angelini expressed skepticism about the DeFi vision, arguing that large-scale decentralized systems inevitably reintroduce centralized infrastructure, making them vulnerable to traditional risks.
However, he acknowledged DLTs' potential to enhance efficiency, reduce reconciliation, and enable smart contracts.
The Bank of Italy's Milano Hub is actively evaluating 57 DLT project proposals.
A primary central bank concern is ensuring the safety of DLT-based market infrastructure, particularly the need for delivery versus payment (DVP) settlement in central bank money.
The Eurosystem is exploring two architectural models: a wholesale CBDC service ("cash on DLT") and an interface integrating DLT platforms with current TARGET services ("trigger/bridge solutions").
Source: DLT and Stablecoins: Where Do We Stand?
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