Banking News

Banque de France trials CBDC settlement using TARGET-2 Securities

digital euro currency

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.

“This experiment has made it possible to demonstrate the possibilities of interactions between conventional infrastructures and distributed infrastructures and paves the way for other alliances with the objective of taking advantage of the opportunities offered by financial assets in a blockchain environment,” said Nathalie Aufauvre, Director General of Financial Stability and Operations at the Banque de France.

Other participants in the trial were Banque Internationale à Luxembourg and LuxCSD.

Last year the central bank announced plans for the wholesale CBDC tests with eight different groupsAccenture, Euroclear, HSBC, fund management platform Iznes, Liquidshare, ProsperUS, Seba Bank and Société Générale (SocGen) Forge. Several have announced more details about their tests, such as using a CBDC to settle the recent bond issue by the European Investment Bank.

The trials are continuing but will conclude shortly.