The Banque de France has revealed the outcomes of its comprehensive testing of wholesale Central Bank Digital Currency (wCBDC) on Distributed Ledger Technology (DLT). The experiments demonstrated the feasibility and practical implementation of wCBDC issuance directly on DLT, highlighting its potential to enhance cross-border payments, settlement finality, and security for various financial assets.

Summary:

The Banque de France has published the results of its wholesale CBDC experiments, showcasing the operational feasibility and practical implementation of wCBDC issuance directly on Distributed Ledger Technology. The experiments demonstrated that a wholesale CBDC could enhance cross-border payments, settlement finality, and security for various financial assets. It could lead to faster, cheaper, and more transparent cross-border payments, ensuring real-time settlement finality and minimizing exposure to market fluctuations. The wCBDC could also revolutionize how diverse financial assets are held and exchanged, providing a more efficient and secure settlement process. The French Central Bank believes that issuing a wholesale CBDC would complement a retail CBDC.

Enhancing Cross-Border Payments and Settlement Finality

The Banque de France’s tests have shown that a wholesale CBDC has the potential to significantly improve cross-border payments and settlement finality. Traditional cross-border payments are often plagued by inefficiencies, delays, and high costs. By introducing a wholesale CBDC, these payments can become faster, cheaper, and more transparent, thus enabling smoother international trade and investment. Additionally, the real-time settlement finality offered by the wholesale CBDC ensures that transactions are executed instantly and with irrevocable certainty. This eliminates settlement risk and reduces exposure to market fluctuations, thereby enhancing financial stability and confidence in the system.

Moreover, a key advantage of the wholesale CBDC is its ability to accommodate a diverse range of financial assets. From government bonds to fund shares and unlisted financial assets, the tokenized form of central bank money can revolutionize how these assets are held and exchanged. Currently, certain financial assets, especially unlisted ones, face limitations in terms of settlement options. However, with the introduction of a wholesale CBDC, these assets can be tokenized and exchanged on a digital platform, providing a more efficient and secure settlement process.

In addition, the Banque de France highlighted that a wholesale CBDC would complement a retail CBDC, such as a digital euro.

The French Central Bank’s CBDC Initiative

In March 2020, the Banque de France embarked on an ambitious path to explore the possibilities of a wholesale CBDC. The objective was to leverage cutting-edge crypto technologies to enhance various aspects of financial operations. By mid-2022, the central bank had completed the initial stage of experiments and entered the second phase, expanding the scope of its tests to address more complex financial scenarios. Throughout this journey, the Banque de France successfully completed twelve experiments, each exploring different aspects of the wCBDC’s application. Notably, one of the groundbreaking experiments involved settling a 100 million euros ($104 million) bond with Luxembourg using the wCBDC, demonstrating its potential in streamlining large-scale financial operations, including interbank and cross-border settlements.

In addition to the Banque de France, other central banks, such as the Bank of England, are also conducting wholesale CBDC experiments.

FAQ

What is a wholesale CBDC?

A wholesale Central Bank Digital Currency (wCBDC) is a type of digital currency issued by a central bank that is restricted to use by financial institutions, such as banks and other authorized entities. It differs from a retail CBDC, which is intended for use by the general public.

How can a wholesale CBDC enhance cross-border payments?

A wholesale CBDC has the potential to enhance cross-border payments by making them faster, cheaper, and more transparent. It enables real-time settlement finality, ensuring that transactions are executed instantly and with irrevocable certainty. This eliminates settlement risk and minimizes exposure to market fluctuations, enhancing financial stability and confidence in the system.

What are the advantages of tokenizing financial assets with a wholesale CBDC?

Tokenizing financial assets with a wholesale CBDC provides a more efficient and secure settlement process. It revolutionizes how diverse financial assets, such as government bonds, fund shares, and unlisted financial assets, are held and exchanged. Currently, certain financial assets face limitations in terms of settlement options, especially unlisted ones. However, by tokenizing these assets and exchanging them on a digital platform, a wholesale CBDC allows for a more efficient and secure settlement process.

Is the Banque de France the only central bank conducting wholesale CBDC experiments?

No, the Banque de France is not the only central bank conducting wholesale CBDC experiments. For example, the Bank of England (BoE) is also planning to conduct a similar test in the near future.