Austria’s central bank, Oesterreichische Nationalbank (OeNB) is starting to work on the second phase of its wholesale central bank digital currency (CBDC) Project Delphi. The first phase focused on simulating delivery versus payment for an Austrian Treasury Bond issued on a blockchain and settled by commercial banks on the same platform using CBDC. The second phase will explore more advanced functionality, business models as well as non-fungible tokens and DeFi.
Johannes Duong from the OeNB was keen to emphasize that the project is purely a national simulation for research, with no plans to launch a wholesale CBDC and independent of the European Central Bank’s (ECB) retail digital Euro initiative. He was talking during a video conference from the Digital Euro Association, a German private sector think tank.
In the first phase of Project Delphi, the participants included the Austrian Treasury (OeBFA), the national central security depository OeKB CSD, Raiffeisen Bank, and Erste Group Bank. The project commenced in October 2020 and ran through to June this year. It’s now starting to work on the second phase planned for 2022.
Duong described the typical motivations behind a wholesale CBDC. A key aim is to reduce the two-day settlement cycle to T0. Another goal is to make processes more efficient, reduce the number of intermediaries and fragmentation of systems. In turn, this will reduce risks. Removing the need to reconcile separate systems will also result in significant cost savings.
Does a wholesale CBDC achieve efficiencies?
However, one of the project’s aims is to see whether these efficiencies can be fully realized and what other risks arise. For example, there’s the question of whether DLTs are sufficiently scalable. While it may remove some intermediaries through DLT, there are new ones in the form of network validators. Although blockchain aims to address silos, a different set of silos is created without blockchain interoperability. And there may be new operational risks for DLT production systems.
Another question is whether a CBDC is needed or if blockchain securities systems could use Europe’s TIPS or Target 2 Securities settlement system as Germany’s Bundesbank has demonstrated with its trigger payments experiment. However, Duong pointed to the need for 24/7 payments and that a distributed infrastructure would be ideal.
The technology workstream involved the central bank developing a prototype for the CBDC and the Treasury Bond digital asset. The second phase will explore a netting solution both as a smart contract and one where only the final net payment is logged on the DLT.
There’s also a stream of work focused on legal matters such as property law, settlement finality and securities laws. There’s a new business workstream for the CSD and banks to explore potential business models in the second phase. And to research non-fungible tokens and decentralized finance (DeFi).
Someone in the audience asked how long it would take to roll out a scalable production system. Duong responded that it is less about the technology and more about the time it would take to get adoption by the marketplace.
Meanwhile, the Banque de France has also run at least eight sets of wholesale CBDC experiments, with more ongoing.