French Central Bank’s wCBDC Experiments Pave the Way for Improved Cross-Border Payments
In an exciting development for the world of central bank digital currencies (CBDCs), the Banque de France recently announced the results of its wholesale CBDC experiments using distributed ledger technologies (DLTs). These experiments have shown that a tokenized form of central bank money, known as the wholesale CBDC (wCBDC), has the potential to revolutionize cross-border payments, settlement finality, and the security of various financial assets.
The Banque de France’s experimentation program was initiated in March 2020 and comprised twelve experiments exploring three different models for issuing wCBDC on DLT: the interoperability model, the distribution model, and the integration model. These models address key aspects of wholesale CBDC implementation, offering different capabilities and functionalities compared to conventional systems.
One of the key takeaways from these experiments is the importance of issuing a wholesale CBDC as a complement to a retail CBDC. This move would ensure the anchoring value of central bank money for both retail and wholesale payments and foster convertibility between different forms of private money, contributing to the singleness of money.
The experiments also emphasized the need for international cooperation and public-private partnerships to create a globally inclusive and interoperable wholesale CBDC framework. Prioritizing interoperability between DLT-based and conventional infrastructures is crucial for seamless data and transaction exchange, while also maintaining the anchoring function of central bank money for interbank and wholesale payments.
Notably, the experiments highlighted climate-related concerns and emphasized the importance of developing energy-efficient solutions in the design of wholesale CBDCs. As the world focuses on sustainability, central banks must consider eco-friendly options to ensure responsible digital currency deployment.
From a technical perspective, the experiments demonstrated that DLT offers various means for central banks to maintain control over their wholesale CBDC while remaining technologically neutral. Collaborating on common standards is essential to enhance the straight-through processing of trade and post-trade activities and promote overall financial stability.
The Banque de France also tested its own DLT, the Distributed Ledger for Securities Settlement System (DL3S), and engaged in pioneering work to optimize wholesale CBDC liquidity through an automated market maker (AMM) in partnership with other central banks and the BIS Innovation Hubs.
Looking ahead, the Banque de France’s work supports the Eurosystem’s exploratory efforts to investigate how wholesale financial transactions recorded on DLT platforms could be settled in central bank money. The institution is eager to explore the boundaries of cross-border payments and contribute to the development of multi-currency DLT platforms that facilitate FX transactions.
In conclusion, the Banque de France’s wholesale CBDC experiments have shown tremendous promise in improving cross-border payments, settlement finality, and financial security. By embracing DLT and promoting interoperability, central banks can enhance the role of central bank money as the safest settlement asset, laying the groundwork for a more efficient and inclusive global financial system.
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