The finance ministry of the German state of Saxony-Anhalt has issued €50m in commercial paper using the Deutsche Börse’s Clearstream D7 platform. The issuance was part of the European Central Bank’s wholesale DLT settlement trials. Hence, the transaction was settled using the Bundesbank’s trigger payment solution, according to Clearstream’s Jens Hachmeister.
The trigger solution is designed to interoperate with blockchains to support DLT payments. It triggers a payment on the TARGET2 real time gross settlement system.
Natwest acted as dealer for the commercial paper, with DekaBank Deutsche Girozentrale as the investor.
Deutsche Börse launched the D7 digital securities solution in 2021. Germany’s digital securities legislation, eWpG, supports securities issued via a central securities depository (CSD), and also blockchain-based cryptosecurities that don’t require a CSD.
To date the D7 issuance has almost entirely been centralized, with the issuance of tens of thousands of structured products. It also hosted a centralized €4 billion digital bond from state-owned German bank KFW in early July. The exception was at the start of the ECB DLT trials, DekaBank and DZ Bank each issued €5 million in DLT bonds via D7.
Clearstream plans further ECB trial transactions
One of the Deutsche Börse’s early initiatives was an investment in the collateral solution HQLAᵡ. The Deutsche Börse acts as a trusted third party for HQLAᵡ, which allows collateral held by custodians to be tokenized, transacted and settled in real time, rather than waiting for two-day settlement.
HQLAᵡ is a natural partner for intraday repo transactions and plans to launch a solution with Fnality, subject to regulatory approval. Clearstream also plans to participate in repo transactions involving HQLAᵡ by using the settlement solutions that are part of the ECB DLT trials.
So far Clearstream has used the Bundesbank’s Trigger solution. However, it also plans to trial the other two solutions available as part of the trials, the Banque de France’s wholesale CBDC and Italy’s TIPS Hash link.
The Trigger solution v a CBDC
To date most of the trials have used the Bundesbank’s Trigger solution, in part because German firms have dominated the trials. Not everyone is a fan of the Trigger solution. However, doubts are often expressed quietly. Some don’t see the point. The Bundesbank portrayed it as a good stop gap. Rather than investing in developing wholesale CBDC, it has suggested that a Trigger solution requires far less work, especially while tokenization has not yet gained traction.
But which comes first, the chicken of the egg? Can DLT show its true benefits without on chain cash?
One of the challenges with DLT is there are costs for institutions to implement it. Hence, often halfway solutions are either the faster route or allow more users to engage. The problem with this approach is halfway solutions rarely reap the efficiency benefits of DLT. To get traction you need the demonstrate the full advantages, which encourages greater adoption. Regarding central bank money, that means there’s a need for a CBDC.
Given these are only trials which last until November, there will be nothing available after that date, unless the central banks make one or more of the solutions permanent. Alternatively, they could extend the trials as the Swiss National Bank did with SDX.
