These efforts are necessary for market participants to remain confident that they can always settle systemically important wholesale liquidity and securities transactions with central bank money. Central bank money is the safest and most liquid settlement asset[5], so using it in this context helps to reduce risks in the financial system, thereby protecting financial stability. This, in turn, preserves the transmission of monetary policy and supports trust in the single currency. Over the past two decades, significant progress has been made in integrating and modernising wholesale payment systems. The transition from the national real-time gross settlement systems to TARGET in 1999, and then to TARGET2 in 2007, led to the first pan-European integrated market infrastructure for large-value wholesale payments. This enabled the rapid and reliable settlement of euro payments in central bank money. The subsequent launch of TARGET2-Securities harmonised post-trade services[6] for financial instruments, bringing an end to complex cross-border settlement procedures. And in 2018 we introduced TARGET Instant Payment Settlement (TIPS), which allows instant retail payments to be settled in real time between banks across the EU, around the clock on every day of the year. In recent years, we have been working on a new consolidated TARGET platform – a complex infrastructure that would offer the market enhanced and modernised services. We are also building a Eurosystem Collateral Management System to simplify processes that involve multiple jurisdictions, notably the mobilisation of cross-border collateral. And we are seeking to ensure that the TARGET Services remain resilient to cyber threats.

But despite the uncertainties surrounding DLT’s potential, we want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement. We must ensure that, in such a scenario, central bank money would still retain its role as the settlement asset for wholesale transactions. If, for example, market players start to use DLT for securities settlement but face difficulties using TARGET Services[10], they may turn to alternatives like commercial bank money or stablecoins. This would entail a number of risks, such as central bank money having a reduced role in settlement processes, as well as trading and liquidity becoming fragmented. The result would be payments and securities settlement becoming less safe and less efficient, which would undermine financial stability. The use of stablecoins would magnify these risks. As we have seen in recent months, stablecoins are prone to runs. In other words, they are stable in name only. And allowing them to be fully backed with central bank money would effectively outsource the provision of central bank money to private entities, endangering monetary sovereignty. [11] A shift away from central bank settlement systems would also imply that authorities would lose direct access to settlement data. This could slow the speed of intervention in the event of settlement bottlenecks and impair the analysis of financial stability. The Eurosystem is therefore exploring ways in which market participants who adopt DLT could interact with the TARGET Services to settle the euro cash leg of their transactions in central bank money.