Today the Banque de France shared details about its latest wholesale central bank digital currency (CBDC) trial, conducted with Switzerland’s SEBA Bank. The experiment was for instant settlement or delivery versus payment (DvP) for a securities transaction. A key use case for an institutional-focused CBDC is to use central bank money to settle blockchain-based transactions for tokenized securities.
Europe’s TARGET2-Securities (T2S) enables DvP by exchanging securities and central bank money simultaneously. So, in this case, the central bank money was a simulated tokenized version of a digital euro on a public blockchain. The advantage of instant settlement is that it reduces the counterparty risk that can happen where one leg of the transaction concludes, such as the transfer of securities, but the payment is not received.
T2S has a Conditional Securities Delivery (COSD) framework, which enables a T2S settlement when some condition outside of T2S is fulfilled. This was used in this case because the CBDC is not a T2S eligible currency.
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