France and Switzerland’s central banks, as well as the Bank for International Settlements (BIS) Innovation Hub, are working with an Accenture-led private-sector consortium to experiment with the use of wholesale central bank digital currencies (CBDC) for cross-border settlement.
The multi-party initiative will sees the participants – which have each already forged leading roles in the rapidly developing territory of CBDC – trialling two wholesale CBDC and a French digital financial instrument on a distributed ledger technology (DLT) platform.
The plan, named ‘Project Jura’ after the Franco-Swiss border mountain range, was announced last week as momentum continues to build behind central banks’ exploration and experimentation with CBDC. Wholesale CBDC are central bank digital currencies used for interbank settlement, as differentiated from general purpose (or retail) CBDC, which are for the general public.
This newly announced experimentation will involve the exchange of the financial instrument against a euro wholesale CBDC through a delivery versus payment (DvP) settlement mechanism and the exchange of a euro wholesale CBDC against a Swiss franc wholesale CBDC through a payment versus payment (PvP) settlement mechanism. The transactions will be settled between banks domiciled in France and in Switzerland, respectively.
‘Convinced’ of potential benefits of wholesale CBDC
Project Jura marks the latest step for both Banque de France and the Swiss National Bank’s CBDC explorations. Both central banks have been among the highest profile, certainly within Europe, in respect of their interest in CBDC.
Banque de France has already undertaken numerous experiments with CBDC and recently partnered the European Investment Bank (EIB) on a CBDC trial. In respect of the latter, for example, the Luxembourg-headquartered EIB issued its first digital bond on a public blockchain (Ethereum), with payment having been represented in the form of CBDC issued by France’s central bank.
The Swiss National Bank, meanwhile, has been investigating the settlement of tokenised assets with wholesale CBDC as part of ‘Project Helvetia’ – a relatively high profile wholesale CBDC project. Project Jura expands this work into the cross-border context.
Banque de France is a member of the Eurosystem, which groups the European Central Bank (ECB) and the national central banks of countries that have adopted the euro. Switzerland, on the other hand, is not a member state of the European Union.
“The Eurosystem is engaging in innovation and adapting its actions to the strong trend towards the digitalisation of payments. The Banque de France is convinced of the potential benefits of wholesale central bank digital currency to provide maximum security and efficiency in financial transactions,” said Banque de France deputy governor Sylvie Goulard.
Both central banks continue to emphasise that their experimentation should not be interpreted as an indication that either plan to actually issue wholesale CBDC.
The private-sector consortium includes, 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.
In alignment with G20 priority
The Franco-Swiss collaboration is the latest case 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.
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.
“The G20 has made enhancing cross-border payments a priority and laid out a multi-year roadmap to co-ordinate efforts. The [Franco-Swiss] experiment contributes to this work by exploring how wholesale CBDC could enhance speed, efficiency and transparency in cross-border use cases. We are excited to join this project, which complements other CBDC experiments that we are working on,” said Benoît Cœuré, BIS Innovation Hub head, in BIS’s own announcement of its participation in Project Jura.