TL;DR Breakdown
- The Banque de France proposed three models for a wholesale Central Bank Digital Currency (CBDC) to improve securities settlement and cross-border payments.
- Experiments showed a wholesale CBDC would enhance cross-border payments, settlement finality, and financial asset security.
- The bank emphasized the need for interoperability, standardization, and energy-efficient solutions in CBDC and DLT design.
Description
In a significant move towards digital currency innovation, the Banque de France has published its second paper on wholesale Central Bank Digital Currency (CBDC), following a series of experiments. The French central bank has identified two primary use cases for an interbank CBDC: securities settlement on Distributed Ledger Technology (DLT) systems and cross-border payments. Three … Read more
In a significant move towards digital currency innovation, the Banque de France has published its second paper on wholesale Central Bank Digital Currency (CBDC), following a series of experiments. The French central bank has identified two primary use cases for an interbank CBDC: securities settlement on Distributed Ledger Technology (DLT) systems and cross-border payments.
Three models for wholesale CBDC
Based on its extensive experimentation, the Banque de France has proposed three potential models for a wholesale CBDC system. The first is the Interoperability Model, which functions similarly to current DLT interactions. In this model, tokenized assets remain within their ledgers, and ownership changes occur within the ledger.
The second model, the Integration Model, proposes a single shared network operated by the Eurosystem (the European Central Bank and the EU central banks). Here, tokenized securities and the wholesale CBDC exist on the same ledger for settlement purposes, enabling a simultaneous exchange of cash and securities on the same ledger.
The third model, the Distribution Model, is a hybrid of the first two. It proposes a shared network, independently operated, with each individual network integrating with the shared network. This model allows for integration between the Eurosystem CBDC network, a foreign CBDC network, or multiple financial market infrastructure DLTs with the shared network.
Enhancing cross-border payments and settlement finality
The French Central Bank has determined that its wholesale CBDC would improve cross-border payments, settlement finality, and security for a vast range of financial assets. The bank conducted numerous tests using DLT, the technology that powers cryptocurrencies and completed twelve experiments, including one to settle a bond worth 100 million euros ($104 million) with Luxembourg.
The experiments have shown that a wholesale CBDC would be crucial for native digital assets and tokenized assets that currently cannot be settled. The French central bank found that issuing a wholesale CBDC would complement retail CBDCs such as a digital euro.
The Banque de France emphasizes the need for interoperability and standardization for cross-border CBDCs and for adopting DLT in the securities markets. The bank also highlighted the importance of developing energy-efficient solutions in the design of wholesale CBDCs, acknowledging the growing concerns around the environmental impact of digital currencies.
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