Innovation in market infrastructure and payments
The ECB’s innovation efforts focus on understanding, assessing and embracing the current wave of transformative financial technology (fintech) in the field of market infrastructure and payments. The ECB therefore analyses and experiments with emerging technologies in three areas: financial market infrastructures, financial assets and the financial ecosystem.
Financial market infrastructure
The ECB explores the potential of emerging technologies such as distributed ledger technology (DLT) and blockchain, without intending to replace existing central bank services with DLT solutions.
What is distributed ledger technology?
A distributed ledger is a record of information, or database, that is shared across a network. The best-known type of distributed ledger is called blockchain as it stores individual transactions in groups, or blocks, attached to each other in chronological order to create a chain. DLT has the potential to make certain financial processes more efficient, or even to transform them completely. The ECB has two main ongoing initiatives exploring these new technologies.
- EUROchain – the ECB coordinates EUROchain, an EU-wide network with national central banks to foster innovation, collaboration and engagement with new technologies. Members of the EUROchain network experiment with the latest financial technologies and host hackathons. Their recent work includes a proof of concept for anonymity in central bank digital currencies.
- Project Stella – the ECB’s joint research project with the Bank of Japan, which has contributed
experimental work and conceptual studies exploring the opportunities and challenges of DLT for financial market
infrastructure.
- Payment systems: liquidity saving mechanisms in a distributed ledger environment (Project Stella phase 1)
- Securities settlement systems: delivery-versus-payment in a distributed ledger environment (Project Stella phase 2)
- Synchronised cross-border payments (Project Stella phase 3)
- Balancing confidentiality and auditability in a distributed ledger environment (Project Stella phase 4)
Financial assets
The ECB explores phenomena such as crypto-assets, stablecoins and questions surrounding the potential issuance of a central bank digital currency.
What are crypto-assets?
Crypto-assets are a new type of asset recorded in digital form and enabled by the use of cryptography. Unlike euro banknotes, crypto-assets do not represent a financial claim on, or a liability towards, any identifiable entity. Crypto-assets derive their novelty and specific risk profile, particularly their inherent high volatility, from the absence of an underlying fundamental value.
- Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures (ECB Occasional Paper Series No 223 / May 2019)
- Understanding the crypto-asset phenomenon, its risks and measurement issues (ECB Economic Bulletin, August 2019)
What are stablecoins?
Stablecoins are an attempt to remove the volatility problem faced by crypto-assets. Stablecoins are digital units of value that are not expressed in any of the forms of a currency but rely on a set of stabilisation tools to minimise the fluctuations of their prices, expressed in a currency of reference.
- In search for stability in crypto-assets: are stablecoins the solution? (ECB Occasional Paper Series No 230 / August 2019)
- In Focus paper – Stablecoins – no coins, but are they stable? (In Focus paper, November 2019)
- Stablecoins: Implications for monetary policy, financial stability, market infrastructure, payments and banking supervision in the euro area (ECB Occasional Paper Series No 247 / September 2020)
What is a central bank digital currency?
A central bank digital currency (CBDC) is a digital form of central bank money that could be made available to institutions and citizens. The ECB is exploring a CBDC, its implications and possibilities in a digital world.
- Remarks by Yves Mersch, Member of the Executive Board of the ECB, 22 March 2019
- Digital challenges to the international monetary and financial system by Benoît Cœuré, Member of the Executive Board of the ECB, 17 September 2019
- An ECB digital currency – a flight of fancy? by Yves Mersch, Member of the Executive Board of the ECB, 11 May 2020
- Unleashing the euro’s untapped potential at global level by Fabio Panetta, Member of the Executive Board of the ECB, 7 July 2020
- Exploring anonymity in central bank digital currency (In Focus paper, December 2019)
Financial ecosystem
New technologies, changing business models and varying consumer needs impact the financial ecosystem. As novel trends emerge, the ECB discusses with industry and academia the potential implications in the field of market infrastructure and payments.