Banque de France has hailed a completed experiment with central bank digital currency (CBDC) as a ‘significant step forward’ as central banks worldwide step up their investigations into the technology that could drive the rollout of CBDCs.
France’s central bank, which announced that it would be running a trial of central bank digital money for interbank settlement in the early part of last year, says its pilot – which took place in partnership with IZNES, a European fund record-keeping platform based on blockchain technology – had concluded successfully.
The central bank described the experiment as a being ‘significant step forward in assessing the levers that a central bank digital currency provides for enhancing the efficiency and resilience of the settlement of financial asset in a blockchain environment, thereby contributing to the smooth functioning of the real economy’.
The pilot saw the subscription and redemption by investors of money-market fund units, for an overall amount exceeding €2m (about £1.78m), on a private blockchain that was provided by London-headquartered company SETL. It required the development and deployment of ‘smart’ contracts (automatic facilitation, verification or enforcement by computer code) so that Banque de France could issue and control the circulation of CBDC tokens and ensure that their transfer took place simultaneously with fund unit tokens’ delivery into the investors’ portfolio.
Banque de France’s research continues
Banque de France’s experiment is among an increasing number of ‘live’ research projects into the technology behind CBDCs, of which there are two main categories: wholesale and retail (or general purpose).
The recently concluded pilot is just one of a number of experiments underway in Paris as regards CBDC. The bank, which had already undertaken a blockchain-based test with Société Générale, announced in July 2020 that it had selected eight companies in total – IZNES and seven others – to experiment with CBDC for interbank settlements. It said this week that its other experiments would be ongoing until ‘mid-2021’ and that all lessons learned would be ‘an important part of Banque de France’s contribution to the Eurosystem’s more global reflection on the benefits of CBDC’.
The European Central Bank (ECB) said earlier this month that a consultation on the possibility of a digital euro had received more responses than any previous ECB public consultation. A ‘detailed analysis’ will be published in the spring, ahead of decision on whether to launch the digital euro.
Estonia’s central bank, Eesti Pank, is currently ‘exploring the limits of technology’ for servicing the needs of retail CBDC.
Banque de France governor François Villeroy de Galhau set out the broader context during a speech in December 2019, saying: “The creation of a CBDC […] is neither a precondition for nor a guarantee of more efficient payments. However, we as central banks must and want to take up this call for innovation at a time when private initiatives – especially payments between financial players – and technologies are accelerating, and public and political demand is increasing.”
BIS leads way at global level
At a global level, the Bank for International Settlements (BIS) Innovation Hub has in the past week announced CBDCs as one of its six priorities for 2021-2022.
Newly announced BIS Innovation Hub CBDC projects are: a proof-of-concept platform using multiple wholesale CBDCs to explore the feasibility of faster and cheaper cross-border payments; and a technological research project and associated prototype(s) for tiered retail CBDC distribution architectures.
The Innovation Hub’s pre-existing CBDC-related activities are ‘Project Helvetia’, an experiment showing the feasibility of integrating tokenised assets and central bank money on which it is working with the Swiss National Bank (SNB) and financial infrastructure operator SIX; and building on the experience of ‘Project Inthanon–LionRock’, a joint-initiative between the Bank of Thailand and Hong Kong Monetary Authority (HKMA).
Separately in France, in a development that illustrates the impact of the pandemic on payments, Banque de France has decided to close more than a third of its cash-handling centres by the end of next year as Covid-19 accelerates a decline in the use of notes and coins, news agency Bloomberg has reported.