Germany finding a bridge between blockchain and the euro

Around the globe, private and public institutions have been experimenting with using distributed ledger technology (DLT), which is best known for powering Bitcoin and other cryptocurrencies, to settle official money trades.

The Bundesbank, which worked on the project with Deutsche Börse and the German government’s debt agency, said on Wednesday that its solution was the first to allow those selling securities on the blockchain to receive their proceeds in their central bank account.

According to the report, the technology could be scaled up to the entire euro zone in the near future, well before the European Central Bank’s digital euro is launched.

“The participants have demonstrated that it is possible to establish a technological bridge between blockchain technology and conventional payment systems to settle securities in central bank money with no need to create central bank digital currency,” the Bundesbank said.

A 10-year government bond was issued on the blockchain during the test and traded by six banks: Barclays, Citibank, Commerzbank, DZ Bank, Goldman Sachs, and Société Générale, though only in test mode.

The trades were settled on the blockchain using a “trigger chain,” which links the assets on the distributed ledger to the euro zone’s payment system, known as Target 2.

Cryptocurrency lovers are often skeptical of central banks, presenting their tokens as a superior form of money because they cannot be printed or devalued at will.

In the next five years, the ECB is considering creating a digital euro, potentially based on blockchain, to supplement currency.

The Bundesbank, on the other hand, has expressed skepticism about the project, claiming that it could destabilize the banking system by luring depositors away during times of crisis.