In a speech last week, the Deputy Governor of the Bank of Italy (BofI), Paolo Angelini, outlined why the central bank favors trigger payments for distributed ledger technology (DLT) settlement. The central bank’s position does not stem from rejecting DLT or wholesale central bank digital currencies (CBDCs) in general but rather from the risk of liquidity fragmentation.
During his speech, Mr. Angelini reflected on whether the large-scale adoption of DLT in financial market infrastructures is feasible. And if so, do the benefits outweigh the costs?
He noted that many financial intermediaries are now settling delivery versus payment (DVP) trades using tokenized commercial bank money. While these developments offer a unique opportunity to assess the benefits and disadvantages of DLT, they are not the norm for financial institutions. Most still prefer the safety of traditional securities trading and settlement systems using central bank money.
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