Last week a new project was unveiled to explore an interbank digital currency to settle security token transactions. The consortium involves the institutional arms of three French banks BNP Paribas CIB, Crédit Agricole CIB and Caisse des Dépôts, security token platform Tokeny and French development house The Blockchain Xdev.
The project has some similarities to Fnality, which is creating an interbank payment system. That project started in 2016 and is backed by 14 global banks and Nasdaq, but awaits the first central banks’ go-ahead.
The French group aims to explore instant atomic settlement or delivery versus payment. That’s for a settlement token to be used to make payment for transactions on a regulated securities exchange that leverages blockchain or distributed ledger technology (DLT).
We’ve asked whether, like Fnality, the plan is for the settlement token to be backed by deposits at the central bank, but we hadn’t received a response at publication time.
The groups say it plans to comply with applicable regulations. A multibank settlement token will likely have to follow the Financial Market Infrastructure (FMI) rules.
But the biggest takeaway of the news is that the banks can’t expect multiple wholesale central bank digital currency (CBDC) to happen any time soon. All three banks are participating in the Banque de France wholesale CBDC trials as members of the Liquidshare group. There are eight different sets of French tests and each has formed a consortium, with Liquidshare as one of them. Furthermore, both Liquidshare and Tokeny have a common shareholder in Euronext.
Even if the European Central Bank gave a wholesale CBDC the green light next year, it would be several years before it went live. A large proportion of derivatives and securities transactions are settled in US dollars, and the likelihood of a wholesale dollar CBDC any time soon is remote.
In terms of the work planned by the group, it aims to settle multiple currencies. And one of the goals is to experiment with interoperability across public and private blockchains as well as the regulatory aspects. Initially, the plan is to use Ethereum and Tezos technologies. The consortium wasn’t mentioned, but The Blockchain Xdev also has experience with R3’s Corda as the developer of Fragmos Chain, a post-trade solution for OTC derivatives.
The group is looking for French, European and international participants to join the project, which aims to be ready in 2021.