The national central bank has just completed a third trial of central bank digital money (CBDM) for the purpose of settlement of listed securities. Five new experiments are planned for 2021 as part of a European study to test the interest of this new form of currency.
One more step towards the digital euro. The Banque de France has just completed a new experiment in central bank digital money (CBDM), an alternative form of money that could be born.
The Banque de France joined forces with the Swiss Seba Bank, which defines itself as a digital asset banking platform, BIL (Banque Internationale à Luxembourg) and LuxCSD, the Luxembourg central securities depository.
Program launched in March 2020
This operation is part of a programme launched in March 2020 to test the use of a digital euro to be issued by the central bank in interbank settlements and as part of a review conducted at European level by the ECB.
For the Banque de France, the aim is to support financial players in these innovations, to examine the benefits and opportunities, and to verify the complementarity and compatibility with existing infrastructures.
Following a call for applications from financial actors, a total of eight experiments were planned, this one being the third in the series. Five remain to be completed.
On December 17, the Banque de France had launched a first one for an investment fund share subscription with Iznes, a blockchain-based exchange platform created in 2017 by management companies.
Then, at the end of April, it also participated in a bond issue by the EIB (European Investment Bank) on the ethereum blockchain with Société Générale and its subsidiary Forge.
A blockchain is a technology for storing and sharing information without an intermediary or central control body.
New form of monetary base
The Banque de France specifies that this possible digital money is not intended to replace the two existing forms of central money, i.e. fiduciary money (banknotes and coins) and scriptural money (the sums placed by all commercial banks in the accounts they hold with the central bank in the system known as Target 2).
Rather, these experiments aim to "iIdentify how innovative technologies could improve the efficiency and fluidity of payment systems and financial infrastructures, for a better financial sector at the service of good financing of the economy".
This digital currency would therefore be a third form of central currency, represented in the form of tokens on a blockchain.
Target 2 Securities
"Finalized on Friday and announced yesterday, this experiment consisted in using MNBC to simulate the settlement of listed securities and thus trigger their delivery in TARGET2-Securities (T2S), in a test environment, through the existing Conditional Securities Delivery (CoSD) functionality of T2S"The Banque de France's press release goes on to explain.
TARGET2 Securities is the real-time settlement system initiated by the ECB and implemented in 2015 to advance the integration of European financial markets, facilitate capital flows and reduce the cost of cross-border transactions within the euro area.
Blockchain and MNBC are expected to further deepen this integration of European financial markets and facilitate the transmission and reconciliation of information.
Tokens and smart contracts
"From a technological point of view, the Banque de France has simulated the issuance of MNBC tokens on a public blockchain, preserving the control and confidentiality of transactions, based on the development and deployment of a dedicated smart contract"The Banque de France explains further.
The national central bank did not disclose the name of the blockchain used, but ethereum or tezos blockchains are often associated with the use of smart contracts. Based on a computer protocol, these smart contracts are autonomous programs that execute the terms of a mutual contract with conditionality and without human intervention.
" This experiment has demonstrated the possibilities of interaction between conventional and distributed infrastructures and opens the way to other alliances with the aim of benefiting from the opportunities offered by financial assets in a blockchain environment "Nathalie Aufauvre, Director General of Financial Stability and Operations at the Banque de France, explained.
Cross-border context
In parallel, the Banque de France is working with the Swiss National Bank and the Bank for International Settlements (BIS) to test the use of MNBC in a cross-border context. The three central banks have joined forces with a private sector consortium (GME) led by Accenture. The GME consists of Credit Suisse, Natixis, R3, SIX Digital Exchange and UBS.