On November 28, the German central bank, Deutsche Bundesbank, and the German stock exchange, Deutsche Börse, jointly announced in a press release that they have been working on a prototype for a new blockchain-based securities settlement system.
The new system is intended to deliver the necessary technological functionalities for a delivery-versus-payment securities settlement system for centrally-issued digital coins, as well as the transfer of cryptocurrencies and crypto assets. Furthermore, the new system is also intended to settle straightforward corporate actions, such as coupon payments and redemption of payments for fixed income securities.
The German central bank and the German securities exchange plan to develop the prototype further in the coming months to oversee the scalability and technical functioning of a blockchain-based settlement system.
The prototype currently has the following features; blockchain-powered payments and securities transfers, a flexible and adaptable access rights framework, observance of regulatory requirements, identification of the potential to simplify reconciliations and reporting, and the implementation of a blockchain-based concept from the Hyperledger project.
Carl-Ludwig Thiele, a member of the Deutsche Bundesbank’s Executive Board, stated, “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.”
While CEO of Deutsche Börse, Carsten Kengeter, believes that, “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.”
This is the first collaboration between the two German financial institutions on a blockchain project. The current prototype of the new settlement system is still purely a conceptual study and "far from […] ready" to be implemented into Germany’s financial system.
However, the announcement of a blockchain-powered securities settlement system, by two leading financial institutions, is a clear sign that blockchain technology will very likely become the industry standard for securities settlements and clearing in the near future. If one of the largest and most powerful economies in the world intends on settling securities on the blockchain, the rest of the world will follow.