The first instance of a funds transaction using central bank digital currency (CBDC) has been successfully completed in France, paving the way for the instant, blockchain-based settlement.
The pilot follows yesterday’s announcement of a completed fund transaction using blockchain technology in Switzerland as the funds industry steps up its use of alternative settlement methods.
The CBDC pilot was run by central bank Banque de France (BdF) using blockchain technology provided by UK-based Setl. The intermediaries included blockchain-based funds platform Iznes, fund managers Groupama and OFI Asset Management, and custodians Caceis and Citi.
The transaction involved the purchase of more than €2 million shares in a money market fund managed by Groupama using CBDC tokens issued by the central bank.
According to Anthony Culligan, chief engineer at Setl, the ability for central banks to issue digital currency in a live environment is “hugely important” given that “there is no credit risk so settlement can be instantaneous, removing the need for complex money movements”.
This may not only reduce the time and cost of transactions but also remove the need for multiple intermediaries, said Culligan. In the current process, funds must employ payment banks as well as custodians but theoretically they can transact directly with the platform, should they wish.
Central banks can also use CBDCs to settle a number of transactions besides fund redemptions and subscriptions such as collateral payments and securities lending.
The BdF announced last March that it would run a series of trials with eight organisations and the Setl/Iznes consortium is the first to be completed.
The central bank isn’t the only such entity pursuing a digital currency project. The European Central Bank published a report on the issuance of a digital euro back in October and has convened a Eurosystem task force involving 19 other central banks to explore the use of CBDCs.
Meanwhile the Swiss pilot announced yesterday involving Zürcher Kantonalbank, Clearstream and funds processing platform FundsDLT shows that the industry is stepping up the pace of its projects.
Banque de France is set to publish the details of the other CBDC pilots in mid-2021, while Culligan expects there to be “concrete plans for rolling out CBDC issuance” by the end of the year.
© 2021 funds europe