European Central Bank (ECB) executive board member Yves Mersch has said the institution’s pending settlement system performs better than the much-talked-about blockchain technology.
The ECB is planning to launch a platform called TARGET Instant Payment Settlement (TIPS) and has asked banks to adopt its new technology, which allows real-time transactions. TIPS is seen as an alternative to the innovative distributed ledger technology (DLT).
In an interview with Bloomberg, Mersch said the following in response to a question whether the ECB would ditch TIPS in favor of blockchain:
“TIPS is 10 seconds, 0.2 cents. DLT transactions are at best 30 euros and take at least one hour. Why would we abandon TIPS? We have a mandate for efficient payment systems, and we go for efficiency. We are not bound to a technology, we are bound to results.”
Even though Mersch might be right about some blockchain systems taking an hour to complete transactions, most of the DLT-based platforms are much faster than this, including faster than ECB’s TIPS. In October last year, the University of Sydney tested a blockchain system that carried out 660,000 transactions per second, which was the fastest DLT in the world.
The ECB held a conference on the new system, discussing the project timeline and the applications that would integrate with it. TIPS will operate exclusively with euro and should be launched in November 2018. It is expected to have full functionality by the end of 2021.
Blockchain is a decentralized system that can also automate settlements and ensure almost real-time transactions. Credit Suisse and other European banks have shown interest in it though they remain skeptical about cryptocurrencies. Mersch, however, does not consider this a valid argument.
“There are so many unsolved questions in terms of governance and legal certainty in DLT. We are looking to what extent we could overcome these legal barriers, but we are at a very early stage,” he said.