Central Banks Report Tokenisation and DLT FX Settlement Success
Posted by Colin Lambert. Last updated: December 9, 2021
The Bank of International Settlements (BIS), Banque de France, and Swiss National Bank say they have shown that wholesale central bank digital currencies (CBDCs) can be used effectively for international settlements.
The three institutions, in associatin with Accenture, Credit Suisse, Natixis, R3, Six Digital Exchange and UBS, conducted Project Jura, which was announced in June. Jura explored the settling of FX transactions in digital euros and Swiss francs, as well as the issuing, transferring and redeeming of tokenised euro-denominated French commercial paper between French and Swiss institutions.
The experiment involved the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger technology platform operated by a third party. Tokenised assets and FX transactions were settled safely and efficiently using payment-versus-payment (PvP) and delivery-versus-payment (DvP) mechanisms. The experiment was conducted in a near-real setting, used real-value transactions and met current regulatory requirements, the central banks say.
Issuing wholesale CBDCs on a third-party platform and giving regulated non-resident financial institutions direct access to central bank money raises intricate policy issues, they observe, adding that Jura explored a new approach including sub-networks and dual-notary signing, which may give central banks comfort to issue wholesale CBDCs on third-party platforms and to provide regulated non-resident financial institutions with access to wholesale CBDCs.
Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions,” says Benoît Cœuré, head of the BIS Innovation Hub. “It also demonstrates how central banks and the private sector can work together across borders to foster innovation.”
This being a central bank experiment, the BdF and SNB stress that the experiment is of an exploratory nature “and should not be interpreted as an indication that the BdF or SNB plan to issue wholesale CBDCs”.
That said, Sylvie Goulard, deputy governor of the Bank of France, says, “With the great success of Jura, the wholesale CBDC experiment programme launched by the Banque de France in 2020 is now completed. Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which are a key facet of international transactions.”
Andréa Maechler, member of the governing board, Swiss National Bank, adds, “As a small open economy, Switzerland requires efficient and robust cross-border payment and settlement arrangements. Project Jura explores how distributed ledger technology can be successfully leveraged to map out how future-proof cross-border settlement between financial institutions could look like.”