Banque de France: CBDCs Can Improve Settlement Conditions
Posted by Colin Lambert. Last updated: July 24, 2023
The Banque de France (BdF) has published a second report resulting from its second set of experiments with tokenisation and central bank digital currencies (CBDC), and says a tokenised form of central bank money could improve cross-border payments and settlement finality and security for a vast range of financial assets.
The BdF work is a contribution to the Eurosystem’s exploratory work announced in April 2023, which aims to investigate how wholesale financial transactions recorded on DLT platforms could be settled in central bank money.
The French central bank says that through its experiments, it has shown the operational feasibility and practical implementation of the three models it has conceptualised for issuing wCBDC directly on DLT. These are the interoperability, distribution and integration models. The BdF says they all address key aspects of wholesale CBDC implementation and each model offers different capabilities and functionalities compared to the conventional systems, so they can be complementary rather than exclusive.
These three models have been tested with different types of DLTs across a spectrum of use cases, covering two key strategic areas: the tokenisation of finance and the improvement of cross-border transactions.
The BdF says four key policy and four technical takeaways have emerged from its work. On the policy side, it says issuing a wholesale CBDC, as a complement to a retail CBDC, would “contribute to the singleness of money by ensuring the anchoring value of central bank money for both retail and wholesale payments, and convertibility between the different forms of private money”.
It stresses that international cooperation and public-private partnerships remain a priority to develop a more globally inclusive and interoperable wholesale CBDC framework, and that interoperability should be prioritised to ensure seamless data and transaction exchange between DLT-based and conventional infrastructures.
Finally, on policy, the BdF says climate-related concerns highlight the need to develop energy-efficient solutions in the design of wholesale CBDCs.
On the technical front, the BdF says technological advancements related to DLT offer various means for central banks to maintain control over their wholesale CBDC. It adds that central banks should remain technologically neutral while actively contributing to the adoption of common standards.
The experiments also showed that DLT could enhance the straight-through processing of trade and post-trade activities and contribute to overall financial stability, and that “continued experiments at domestic and international level are essential to advance our analysis and our efforts to develop an operational framework through a learning-by-doing approach”.
We have demonstrated that our DLT solution is flexible and can be interoperated with Target solutions and other DLT solutions
“These 12 experiments, which were all carried out successfully with our partners, central banks and commercial banks, in a public-private partnership, have provided us with the assurance that central bank money can be provided in a tokenised form to settle tokenised assets and improve cross-border payments,” says Emmanuelle Assouan, director general of financial stability and operations at the BdF. “We are happy to provide our DL3S DLT solution in the context of the exploratory work announced by the Eurosystem for settling tokenised transactions, using central bank money, including in the European Pilot Regime, and are also ready to explore other solutions to facilitate the interaction between Target Services and DLT platforms.
“We have demonstrated that our DLT solution is flexible and can be interoperated with Target solutions and other DLT solutions,” he continues. “We are also keen to keep abreast of developments in the field of cross-border payment and explore new concepts.
“This is only the beginning of the journey; we contemplate that multiple wCBDC DLTs could coexist on a global scale,” Assouan adds. “It is therefore key to explore their interoperability from the outset of their design, to avoid replicating hurdles experienced on interlinking existing Real-Time Gross Settlement Systems.”