The European Investment Bank (EIB) has issued its first euro-denominated ‘digitally native’ bond using private blockchain technology.
The Luxembourg-headquartered EIB, which is the long-term lending institution of the European Union (EU), enacted the €100m (about £85m) bond issuance with same-day settlement in co-operation with two central banks and three international private banks. It is the first syndicated digital bond issued by a public institution to be admitted on the Luxembourg Stock Exchange’s Securities Official List and first digital bond executed under Luxembourg law.
Banque de France (BdF) and the Banque centrale du Luxembourg participated in what is called ‘Project Venus’ by providing a digital representation of euro central bank money in the form of tokens. The EIB issued a series of bonds on a blockchain, where investors purchased and paid for the security tokens using traditional currency. The joint lead managers — Goldman Sachs Bank Europe, Santander and Société Générale — then settled the underwriting against the issuer using a representation of central bank money: wholesale central bank digital currency (CBDC) in action.
The landmark transaction is announced just over 18 months after the EIB issued its first digital bond – also a two-year bond worth €100m – on a public blockchain. The EIB also partnered BdF on this earlier breakthrough experiment, with payment having been represented on the blockchain in the form of CBDC issued by France’s central bank, with Goldman Sachs, Santander and SocGén also previously involved.
The EIB said in its Project Venus announcement that it was ‘pushing innovation even further with this second digital transaction’ as it ‘continues to spearhead developments in the digitalisation of capital markets’.
‘Accelerating the adoption of DLT’
The EIB’s first digital bond issuance last year was on the public Ethereum blockchain. In Project Venus the bond was issued, recorded and settled using private blockchain-based technology, and represents the inaugural issuance on Goldman Sachs’ digital assets platform (known as ‘GS DAP’).
The new digital bond is the first syndicated deal to be settled ‘T+0’, where ‘T’ stands for the transaction date and ‘+0’ means that it was settled (funds transferred) on the actual issuance date (as distinct from a certain number of days afterwards), the EIB states. It adds that it is also the first ‘cross-chain Delivery vs Payment (DvP) settlement’ using an experimental CBDC token. Investors included AXA IM and Union Investment.
‘With its second fully digital bond, the EIB is continuing to lead the way for other market players to adopt blockchain technology,’ the EIB states, adding that ‘unlike some cryptocurrencies using blockchain technology, the EIB’s blockchain bond issues do not lead to extensive energy use.’
“Blockchain has the potential to disrupt a wide range of sectors,” said EIB vice-president Ricardo Mourinho Félix, a former Banco de Portugal economist. “It plays a central role in the success of Europe’s green and digital transitions, and strengthens our technological sovereignty. Innovation is part of the EIB’s identity and issuing this fully digital bond is another important step in helping to develop a fully digital ecosystem.”
Arnaud Delestienne, who is director of international capital markets and an executive committee member at Luxembourg Stock Exchange, said the exchange “wholeheartedly supports the digitalisation of capital markets” and was “confident that this move will help further accelerate the adoption of the distributed-ledger technology [DLT] in global debt capital markets operations.”
Feeding into Eurosystem discussions
The two central banks involved also put out a joint-announcement hailing the project.
“The Venus initiative confirms that a well-designed CBDC can play a critical role in the development of a safe tokenised financial asset space in Europe,” said Nathalie Aufauvre, general director for financial stability and operations at the BdF, which is a frontrunner among central banks in its research and experimentation in wholesale CBDC.
Aufauvre added that the project also aims to contribute to discussions in the Eurosystem (which comprises the European Central Bank and the central banks of the 19 EU member states that use the euro) on how to improve services to the wholesale market in particular under the EU’s pilot regime for financial market infrastructures based on DLT. The DLT pilot regime, part of the digital finance package introduced by the European Commission in 2020, will start applying in March 2023.
France’s central bank is a frontrunner globally in its research and experimentation into wholesale CBDC – the lower-profile sibling of retail CBDC.
Speaking in July the BdF’s governor, François Villeroy de Galhau, described wholesale CBDCs as “quasi-consensual, with strong use-cases” but as raising “little public interest”. Retail CBDCs, which are for public use and also known as ‘general purpose’ CBDCs, are – by contrast – “the focus of both public excitement and private questions,” he said.
‘Banque de France kicks off new wave of wholesale CBDC experiments’ – our news story (21 July 2022) on the BdF launching a new wave of experimentation in wholesale CBDC
‘European Investment Bank issues digital bond on public blockchain’ – our news story (5 May 2021) on the EIB’s public blockchain digital bond issuance 18 months ago