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French Central Bank’s Blockchain Bond Trial Brings First Results

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Jaroslaw Adamowski

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Jaroslaw Adamowski

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Last updated:

June 26, 2023

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French central bank Banque de France has disclosed the results of its experimental program to use central bank digital currency (CBDC) to exchange and settle tokenised government bonds, potentially paving the way for the technology’s rollout in the country’s debt market.

Per the bank, the experiment confirmed that the blockchain technology allows managing post-trade market operations in CBDC, “subject to the completion of additional testing with real-world volumes,” which would also “provide the data required to make a quantification of the potential efficiency gains and cost savings that a blockchain-based infrastructure could offer for the securities business.”

“The experiment also showed us that blockchain platforms can coexist and interoperate with existing legacy settlement platforms,” according to Euroclear. Central securities depository (CSD) “functionalities can be operated on a permissioned blockchain environment while fully respecting the regulatory rules of control, confidentiality and privacy.”

However, the study also cautions that, before considering the use of a blockchain platform in production, there is still a need to execute real-life volume and performance tests.

The initiative was spearheaded by Belgium’s financial services firm Euroclear with the use of a system designed by the US tech giant IBM.

Close to 500 institutions took part in the trial, including primary dealers and custodians active in the French market, Euroclear said in a report summarizing the project’s results. These include BNP Paribas and BNP Paribas Securities Services, Crédit Agricole CIB, the UK’s HSBC, and Société Générale.

The experiment’s goals were to verify and assess whether a large range of post-trade functionalities could be run on blockchain, identify the added value of blockchain tech and CBDC for the capital markets from a user point of view, and also to assess the potential next steps.

The “proof of concept” experiment was carried out in a test environment for which both CBDC tokens and Obligations assimilables du Trésor (OAT) securities – government bonds issued by the French Treasury – were natively issued on a blockchain ledger, the report said. The involved banks acted as OAT market players and custodians in the experiment, helping simulate the securities trades.

In the course of the trial, French business daily Les Echos commented that Banque de France is “pursuing its experiments in a rhythm propped by the forerunner of the future digital euro,” making a reference to efforts by the European Central Bank (ECB).

At the same time, the French initiative comes about six months after the European Investment Bank (EIB) launched its first bond sale using the blockchain technology. Last April, the EU institution issued EUR 100m (USD 116.5m) on the Ethereum (ETH) blockchain in cooperation with Spain’s Banco Santander, Société Générale, and the US investment bank Goldman Sachs.

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