Eurex Clearing integrated the Banque de France’s wholesale central bank digital currency (wCBDC) as part of the Eurosystem’s trials for wholesale DLT settlement using central bank money. Tokenized commercial paper issued by ABN AMRO a couple of weeks ago, was traded on the Eurex Repo F7 platform with settlement using the wCBDC. Additionally, the wCBDC was used for margin calls.
Stepping back, as institutions start to issue digital securities on DLT, they need accept payment for securities, ideally through a DLT integration to reap the full efficiencies. Hence, the European Central Bank (ECB) is coordinating a series of trials to ensure digital securities continue to be settled with central bank money. There are three settlement options, with the German and Italian central banks providing links with the European TARGET and TIPS payment systems. The Banque de France opted for a ‘full DLT interoperability’ solution, which uses a wholesale CBDC.
Four central banks involved
For the Eurex test, three other central banks participated: the German Bundesbank, Dutch De Nederlandsche Bank and Banque Centrale de Luxembourg. ABN Amro Bank, ABN Amro Clearing Bank, Rabobank, Clearstream, and Eurex Repo were also involved.
One of the Eurex takeaways is that “DLT does not inherently alter the risk profile associated with counterparties.” That’s true, technology won’t do that. However, delivery versus payment (DvP), in which the securities and cash change hands simultaneously, is a great way to reduce risk. DLT is pretty good at DvP, but the execution of DvP pre-dates the technology. On the other hand, central counterparties often provide netting systems which reduce the amounts that need to be paid. Theoretically, that could be done via DLT as well.
“Working with Deutsche Börse Group – Eurex Clearing, Eurex Repo, and Clearstream alike – on these trials has been invaluable in ensuring that the solutions meet the needs of all different stakeholders,” said Claudine Hurman from the Banque de France. “These efforts are vital for integrating distributed ledger technology into financial market infrastructures, paving the way for the future of digital finance.”
