ECB’s Löber: Industry must understand blockchain trade-offs

By Rebekah Tunstead | 7 November 2019

The payments industry is reaching saturation point with blockchain initiatives, according to the head of oversight division at the European Central Bank (ECB).

“You have [blockchain] developments, if they are integrated into an existing service, existing infrastructures, it is incremental,” said the ECB’s Klaus Löber on a panel at the International Swaps and Derivatives Association (Isda)’s technology forum, in central London this week.

“It is just a change of platform, but if of course it provides alternative networks then you have an issue really about what does it substitute, and how many channels does the market actually support? And that is - particularly because that is the most advanced area - an interesting area in payments. Do you need additional payment channels to substitute, to complicate cash, to card payments? How much does the market support? The jury is out, but ultimately, I think there is not unlimited space here, so if something new comes in, something else will be replaced.”

A report by the World Economic Forum published in March identified 10 distributed ledger technology (DLT) applications and use cases that were being researched by central banks - from interbank securities settlement to information exchange and sharing.

Several DLT initiatives have been created this year. In June, Visa launched B2B connect - a DLT-based cross-border payment platform with partners from Commerce Bank in the US, Shinhan Bank in South Korea, Union Bank of Philippines, and United Overseas Bank in Singapore. Alfa-Bank and Novolipetsk Steel Company in association with Commerzbank and Vesuvius launched a cross-border payment pilot project on the Marco Polo international trade finance network in October.

The growth in digital assets - such as financial instruments and securities - has sparked discussion in Germany around the concept of ownership, according to Löber.

“There are questions about how do you hold and transfer? Can you actually use these assets as collateral? Can you net a position in a digital asset with positions we have in the same kind of asset? They are fairly fundamental questions on the legal status of issuers, intermediaries, and providers of supporting infrastructures and platforms in this context.

“For once, the securities and financial instruments side is less complex than the money side because on the money side this is raising the questions, is this a claim or is it property? And this is some very fundamental issues of discord in what currently in a global payment space is still fairly harmonised.”

On September 18, the German Federal government announced a blockchain strategy which aims to “identify and harness blockchain’s potential while simultaneously preventing its misuse.”

But Löber said he didn’t expect “that we will soon face a new attempt to have a global convention in [the digital assets] field.”

“I think we will clearly identify some critical issues and probably some options to focus on to guide domestic debates to help achieve at least not in a higher degree of complexity that we already face in the global leaders’ field.”

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