The European Central Bank (ECB) has published a working paper on blockchain technology, examining its potential role and impact in securities markets. The paper, co-authored by ECB economists Andrea Pinna and Wiebe Ruttenberg, explores various possible blockchain market applications and the possible impact of distributed ledger technology on markets, while examining different uses of smart contracts in the foundations of securities markets. In a paper titled “Distributed Ledger Technology and Post-Trading Securities,” published on April 17, the authors state:
Markets may drive changeOverall, the paper provides a bird’s-eye view of the current post-trade settlement environment, identifying some of the pain points that blockchain advocates hope to improve with the technology. “Current market conditions, with low interest rates and expected increases in collateral demand, have squeezed profits for financial intermediaries,” the authors wrote, adding:
Nevertheless, problems remain, the authors go on to assert in their paper. Discussion on adoptionThe paper’s focus section explores the potential outcomes of industry experimentation with blockchain technology. In one scenario, post-trade institutions using blockchain applications are able to improve their overall efficiency, but their infrastructure remains unchanged. In this case, so-called “siloed” distributed ledgers will help operators cut costs while still encountering interoperability challenges. In more extreme cases, peer-to-peer networks would have the potential to cut out clearing and settlement firms entirely, placing the functions of securities issuance and trading squarely in the hands of investors and the companies that sell those assets. Ultimately, the paper's authors note that it's still too early to tell the exact impact of this technology, however, they speculate that any changes would likely occur over a longer timeline. The paper concludes:
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