Central bank digital currencies (CBDCs) can be used effectively for cross-border settlement between financial institutions, according to the conclusions of a ‘quasi-live’ trial using distributed ledger technology (DLT) undertaken by the Bank for International Settlements (BIS) and France and Switzerland’s central banks.
The experiment, named ‘Project Jura’ after the Franco-Swiss border mountain range, ‘advances further the frontier of knowledge’ about DLT‑enabled wholesale CBDC and ‘is expected to make a significant contribution towards laying the foundations for possible wholesale CBDC adoption’, according to the project’s conclusions published today (8 December).
Project Jura was conducted by Banque de France (BdF) and Swiss National Bank (SNB), working alongside BIS and in collaboration with six private companies: professional services firm Accenture; on the banking side, Switzerland-headquartered Credit Suisse and UBS, as well as Paris-headquartered Natixis; plus, US-headquartered blockchain software developer R3 and Zurich-based digital assets infrastructure provider SIX Digital Exchange.
The trial, which took place over three days during November, saw the settlement of foreign exchange (FX) transactions in euro and Swiss franc wholesale CBDCs, as well as issuing, transferring and redeeming tokenised euro-denominated French commercial paper between French and Swiss financial institutions.
A dual‑notary signing solution developed by R3 using the Corda platform was at the heart of the project, which complements the increasing number of projects in the cross-border wholesale CBDC space worldwide.
‘We are still at the beginning’
Both central banks involved Project Jura have been among the highest profile, certainly within Europe, in respect of their CBDC experimentation.
Announced six months ago, the project propelled pre-existing SNB wholesale CBDC explorations, known as ‘Project Helvetia’ (run by the SNB alongside BIS and SIX), into a cross-border context. BdF, meanwhile, had also already undertaken numerous wholesale CBDC experiments, including partnering the European Investment Bank (EIB).
“With the great success of Jura, the wholesale CBDC experiment programme launched by the Banque de France in 2020 is now completed,” BdF deputy governor Sylvie Goulard said today. “Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which are a key facet of international transactions.”
Though the Project Jura conclusions are now published, central banks’ research into the opportunities and potential challenges of going live with wholesale CBDC continue.
“We are still at the beginning – there are still many questions,” SNB governing board member Andréa Maechler said today during a virtual press conference in answer to a question from Global Government Fintech.
“A ‘big picture’ question is ‘how scalable is it?’,” she continued, pointing out that Project Jura was based on a single (third-party) platform with dual-notary signing solution. “There is also [the question of] ‘how do these new digital platforms really connect to the existing systems?’. Ultimately the key [question] is interoperability.”
Thomas Moser, alternate member of the governing board of the SNB, added that, as well as technical questions, authorities exploring CBDCs ultimately need to have an eye on governance, legal and policy questions.
According to the 28-page report, the ‘near‑real’ experimentation of Project Jura ‘was a challenge as it meant that significant legal and regulatory preparations were needed for the experiment to take place, including rulebooks, contingency procedures and monitoring capabilities’. The fact the experiment was conducted using real‑value transactions within the existing legal and regulatory frameworks – and not in a ‘regulatory sandbox’ – added ‘significant complexity but also realism’, according to the report.
Innovating with the private sector across borders
“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,” said BIS Innovation Hub head Benoît Cœuré. “It also demonstrates how central banks and the private sector can work together across borders to foster innovation.”
The Franco-Swiss collaboration is just one example of central banks working with their counterparts to explore the potential use of CBDC in a cross-border context.
The central banks of China and the United Arab Emirates (UAE), for example, have teamed up with the equivalent authorities in Hong Kong and Thailand to investigate the potential CBDC use in cross-border foreign currency payments. The four authorities are also collaborating with the BIS Innovation Hub Centre in Hong Kong, with the project named ‘m-CBDC Bridge’ (the ‘m’ stands for ‘multiple’). The Central Bank of the UAE had already run a wholesale CBDC proof-of-concept with the Saudi Central Bank to settle domestic and cross-border transactions using central bank money via DLT. The two central banks published a 93-page report on their joint-initiative, known as ‘Project Aber’, last year.
BIS announced in September that it was significantly extending its ‘Project Dunbar’ initiative to test CBDCs for international settlements: the South African Reserve Bank, Reserve Bank of Australia and Bank Negara Malaysia joined the explorations, which already involved its Innovation Hub and Monetary Authority of Singapore (MAS).
The BIS Innovation Summit in March featured a session entitled ‘Fast, cheaper cross-border payments: is wholesale CBDC the answer?’, which sought to pick up on themes from the Financial Stability Board’s ‘Enhancing Cross-Border Payments’ roadmap presented to the G20 last October. During the session Sveriges Riksbank first deputy governor Cecilia Skingsley described wholesale CBDC as “a possible solution or one of the solutions but not the solution” to the discussion’s question.
‘BIS’s Coeuré urges ‘acceleration’ in global CBDC efforts’ – a report (13 Sep 2021) on a speech given by Benoît Coeuré entitled ‘Central bank digital currency: the future starts today’ during which the BIS Innovation Hub head described central banks as “stepping up efforts to prepare the ground for digital cash”
‘French and Swiss central banks trial cross-border CBDC’ – our news story (14 June 2021) on Project Jura’s launch
‘China and UAE join HK-Thai explorations of cross-border digital currency payments’ – our news story (24 February 2021) on the central banks of China and the UAE teaming up with the equivalent authorities in Hong Kong and Thailand to investigate the potential for CBDC use in cross-border foreign currency payments (the BIS Innovation Hub Centre in Hong Kong is also involved)
‘Banque de France: CBDC blockchain experiment is ‘significant step forward’” – our news story (26 January 2021) on the BdF’s completion of a pilot using CBDC for interbank settlement (this pilot took place in partnership with IZNES, a European fund record-keeping platform based on blockchain)