Germany’s Central Bank Trials Blockchain Prototype For Trading In Securities

Germany’s apex bank is testing the prototype of a Blockchain system for the trading in securities.

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Germany’s Central Bank Trials Blockchain Prototype For Trading In Securities

German central bank, Deutsche Bundesbank, which is also the most influential member of the European System of Central Banks ESCB due to its strength and former size, announced the unveiling of a functional prototype of a Blockchain technology-based settlement of securities.

Jointly presented with Deutsche Börse, the marketplace for the trading of shares and other securities, the prototype is the first result of a collaborative research project between the two institutions that is based on a conceptual study and not market-ready.

Designed to provide the technical functionality for the settlement of securities in delivery-versus-payment mode for centrally-issued digital coins and the pure transfer of either digital coins or digital securities alone, the two institutions plan to develop the prototype further over the next few months so that they can analyze the technical performance and the scalability of this kind of Blockchain-based application.

Distributed Ledger Technology

In the World Economic Forum’s report titled “The future of financial infrastructure: An ambitious look at how Blockchain can reshape financial services,” it was noted that more than 90 central banks are engaged in Blockchain - or Distributed Ledger Technology (DLT) - discussions worldwide. It says that the technology should be viewed as one of many technologies that will form the foundation of next generation financial services infrastructure and one that will redraw processes and call into question orthodoxies that are foundational to today’s business models.

Several central banks - as well as private banks - have been experimenting with different versions of Blockchain-backed systems, with 2017 being tipped to be the year of the technology that powers the world’s top digital currency, Bitcoin.

Some of the features of the prototype presented by the Germans include its capability to be used for Blockchain-based payments and securities transfers and the settlement of securities transactions against both instant and delayed payment; and its ability to maintain confidentiality/access rights in Blockchain-based concepts on the basis of a flexible and adaptable rights framework

It can also enable the general observance of existing regulatory requirements; identify potential to simplify reconciliation processes and regulatory reporting; and implement a concept based on a Blockchain from the Hyperledger project.

It is also capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities.

"With the Blockchain prototype, the Deutsche Bundesbank and Deutsche Börse want to work together to find out whether this technology can be used for financial transactions, and if so, how this can be achieved. The Deutsche Bundesbank hopes that this prototype will contribute to a better practical understanding of Blockchain technology in order to assess its potential," explained Carl-Ludwig Thiele, a member of the Deutsche Bundesbank's Executive Board.

"Along with the Deutsche Bundesbank we are innovatively and creatively addressing potentially radical technological opportunities for the financial sector. We will continue to do our utmost to leverage Blockchain's efficiency potential and to better understand and minimize the associated risks of this technology," added Carsten Kengeter, CEO of Deutsche Börse AG.

The two institutions will continue to work on improving the prototype and drawing up a test concept.

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