The European Central Bank’s trials to identify new ways to use central bank money to settle securities transactions carried out on distributed ledger technology — better known as the ECB Trials — are turning out to be more political than market participants had hoped.
The exploratory phase offers participants in the trials three central bank solutions — those of the Banque de France, the Deutsche Bundesbank and the Banca d’Italia. Each has a different technological focus, a different use case, poses different legal risks and is based on that country’s own regulatory framework.
Theoretically, of course, there isn’t anything stopping a French issuer using the Italian solution, or a German issuer using the French one. Indeed, at the launch of the ECB Trials, there were hopes that they would transcend national loyalties.
But in this experimental phase of the trials, and much to the dismay of some market participants, the choice of solution seems to have more to do with the nationality of the parties involved than anything else.
At this stage, it isn’t critical who tests which solution, just that they are all tested.
A recent deal for Italian development bank Cassa Depositi e Prestiti made use of the Italian central bank solution for the first time in the trials, and was the first digital bond ever issued in Italy under its new legal framework.
Last week’s bond for Slovenia, issued and placed by BNP Paribas, was the first to use the Banque de France’s solution.
That these recent issuers are Italian using the Italian solution, or French using the French solution isn’t pivotal at this stage of experimentation.
But eventually will come the point of mass adoption. This is when investors from everywhere decide where to invest their money in digital bond tech. They will do so based on how efficiently any and all solutions meet their needs, not on the flag most closely associated with it.
For a technology to achieve widespread acceptance, it must prove its superiority in the real world, regardless of its origin.
At one point or another, the market will need to shed political loyalties and the focus will be on rigorous testing and transparent and objective comparison for it to identify the most scalable approaches to DLT-based securities.
These trials are a guide but not a roadmap to the future of DLT.