The European Central Bank (ECB) is looking to establish a mechanism for settling distributed ledger technology (DLT) transactions with fiat currency, advancing its efforts on the foundational aspects of blockchain and cryptocurrencies.

The ECB has outlined a two-step strategy to implement this technology, starting with a linkage to its established Target settlement system. The Target system facilitates the unimpeded transfer of cash, securities, and collateral across Europe.

“This is an important contribution to enhancing European financial market efficiency through innovation,” stated Piero Cipollone, who oversees the project.

The ECB is also pursuing a long-term approach for integrating fiat currency settlements in DLT transactions, including plans for foreign exchange settlements. The bank has been assessing digital currency technology since 2023, building on work that involves financial market participants to explore wholesale transactions recorded on DLT to be settled with central bank money.

A detailed timeline for the ECB’s plans will be announced in due course.