Euroclear supports use of CBDC for settlements
20 October 2021 Belgium
Image: Euroclear
A consortium of institutions, led by Euroclear, have successfully experimented with central bank digital currency (CBDC) for settling French treasury bonds on a test blockchain.
The experiment, which was commissioned by the Banque de France, included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, Societe Generale.
IBM provided Euroclear with design and platform features, including privacy-preserving tokens and hybrid cloud capabilities.
The objective of the experiment was to assess if a wide range of operations and functionalities can be run on a blockchain platform and identify, from a user point of view, the added value of blockchain technology.
The experiment covered a range of core securities settlement operations including securities issuance, primary market and secondary market trades, liquidity optimisation mechanisms such as repo and interest payments.
The experiment also demonstrated that a blockchain platform can co-exist and interoperate with existing market infrastructure, Euroclear says.
A research paper outlining the experiment’s findings, written by Euroclear, in collaboration with other leading industry leaders, outlines that having client settlement flows taking place directly on the blockchain platform will allow custodians to reduce (or even remove) the reconciliation workload with their clients.
This increased level of transparency could also facilitate the identification of end investors and ease the registry management for issuers, the paper mentions. It adds that CBDC and security tokens can be easily transferred across different blockchain platforms because of their atomicity and simplicity, which makes them ideal for cross-border purposes.
For this reason “blockchain could therefore facilitate a reduction of the settlement cycle to T+1 or even T+0 leading to capital and margin cost reductions”, the paper says.
The post trade functionalities for the experiment were developed and rolled out over a 10 month period.
Isabelle Delorme, deputy CEO of ESES CSDs Euroclear France, Euroclear Belgium and Euroclear Nederland comments: “We are extremely pleased to have worked on this pioneering project with our industry partners and the Banque de France.
“Together, we have been able to measure the degree to which the issuance of central bank digital currency can offer fast and secure settlement of tokenised securities. We are well aware that there are still challenges that need to be overcome before we can envisage the implementation of blockchain platforms in production as we continue to investigate all routes to drive efficiencies for our clients.”
The successful experiment follows LiquidShare and Banque de France's experimental use of CBDC for interbank settlement purposes back in early July 2021.
The experiment tested delivery versus payment for both listed and non-listed securities on blockchain across the entire lifecycle of securities, spanning issuance and registration to secondary market operations’ settlement.
Using blockchain technology, all processes were validated, including the functions of creation, control and destruction of CBDC tokens belonging to Banque de France.
The consortium, made up of 15 entities and over 45 individuals, represented a wide variety of participants across the ecosystem, with Euronext acting as the marketplace and Euroclear France as central securities depository.
In July, LiquidShare CEO Jean-Marc Eyssautier and lead IT architect Emil Kirschner talked to Bob Currie about the company’s strategic pivot, the strength of its capital market operations expertise and the advantages it derives from its distributed ledger technology-based technology.
The experiment, which was commissioned by the Banque de France, included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, Societe Generale.
IBM provided Euroclear with design and platform features, including privacy-preserving tokens and hybrid cloud capabilities.
The objective of the experiment was to assess if a wide range of operations and functionalities can be run on a blockchain platform and identify, from a user point of view, the added value of blockchain technology.
The experiment covered a range of core securities settlement operations including securities issuance, primary market and secondary market trades, liquidity optimisation mechanisms such as repo and interest payments.
The experiment also demonstrated that a blockchain platform can co-exist and interoperate with existing market infrastructure, Euroclear says.
A research paper outlining the experiment’s findings, written by Euroclear, in collaboration with other leading industry leaders, outlines that having client settlement flows taking place directly on the blockchain platform will allow custodians to reduce (or even remove) the reconciliation workload with their clients.
This increased level of transparency could also facilitate the identification of end investors and ease the registry management for issuers, the paper mentions. It adds that CBDC and security tokens can be easily transferred across different blockchain platforms because of their atomicity and simplicity, which makes them ideal for cross-border purposes.
For this reason “blockchain could therefore facilitate a reduction of the settlement cycle to T+1 or even T+0 leading to capital and margin cost reductions”, the paper says.
The post trade functionalities for the experiment were developed and rolled out over a 10 month period.
Isabelle Delorme, deputy CEO of ESES CSDs Euroclear France, Euroclear Belgium and Euroclear Nederland comments: “We are extremely pleased to have worked on this pioneering project with our industry partners and the Banque de France.
“Together, we have been able to measure the degree to which the issuance of central bank digital currency can offer fast and secure settlement of tokenised securities. We are well aware that there are still challenges that need to be overcome before we can envisage the implementation of blockchain platforms in production as we continue to investigate all routes to drive efficiencies for our clients.”
The successful experiment follows LiquidShare and Banque de France's experimental use of CBDC for interbank settlement purposes back in early July 2021.
The experiment tested delivery versus payment for both listed and non-listed securities on blockchain across the entire lifecycle of securities, spanning issuance and registration to secondary market operations’ settlement.
Using blockchain technology, all processes were validated, including the functions of creation, control and destruction of CBDC tokens belonging to Banque de France.
The consortium, made up of 15 entities and over 45 individuals, represented a wide variety of participants across the ecosystem, with Euronext acting as the marketplace and Euroclear France as central securities depository.
In July, LiquidShare CEO Jean-Marc Eyssautier and lead IT architect Emil Kirschner talked to Bob Currie about the company’s strategic pivot, the strength of its capital market operations expertise and the advantages it derives from its distributed ledger technology-based technology.
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