The European Central Bank (ECB) is looking to get ahead of the game by studying how blockchain-based banking transactions will enable greater control of money, even if lenders switch to distributed ledgers.

Fabio Panetta, member of the ECB board, pointed out that it was essential to avoid a situation in which liquidity and trade would be fragmented if banks were allowed to enter into agreements with each other or use stablecoins.

paneta added:

“Despite the uncertainties surrounding the potential of DLT, we want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement.”

Market participants can use distributed ledger technology (DLT) to verify transactions as a copy of the transaction is kept rather than relying on a trusted party such as a central bank. According to the report:

“In addition to a digital euro for consumers, the ECB is looking at how it could allow banks to settle wholesale transactions between themselves on a distributed ledger, rather than the central bank itself.”

Based on the popularity of cryptocurrencies like Bitcoin (BTC) and the underlying blockchain technology, the ECB is one of the global central banks considering digital currencies.

For example, the ECB launched a public consultation on the proposed Digital Euro, reported Blockchain.News.

On the stablecoin side, Panetta revealed that they could jeopardize currency supremacy. He said:

“Giving stablecoins the backing of the ECB would outsource the provision of central bank money to private entities, endangering monetary sovereignty.”

Panetta added that the ECB sought solutions to bridge the gap between its Target 2 settlement system and private blockchains.

Meanwhile, the ECB raised interest rates by 50 basis points (bps), bringing its deposit rates back to zero from -0.5% in July. The hike was a surprise move as economists had anticipated a smaller 25 bps hike.

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