The Eurosystem is currently running trials for wholesale DLT settlement in central bank money. One of the three central bank payment solutions is a wholesale CBDC using the Banque de France’s DL3S blockchain network. Today the central bank said it has conducted seven of the 19 planned trials so far.
Wholesale CBDC for interbank settlement
Two of the experiments involved using a wholesale CBDC for interbank settlement of commercial bank money. The Eurosystem distinguishes between ‘experiments’ which are simulations versus ‘trials’ that use real money.
One test involved the Italian Banking Association’s ABI Lab. In 2020 it went live with a DLT solution, Spunta, that automates interbank reconciliations for more than 100 Italian banks. It now manages 200 million transactions a year and the output is the net amount that banks owe each other on a nightly basis. Subsequently it ran Project Leonidas as a wholesale CBDC trial in the Bank of Italy’s sandbox. In that case, the wholesale CBDC was used to settle the balances.
Now a similar experiment was executed on France’s DL3S platform with eight Italian banks. On the one hand, the interbank liability crystallizes on the ABILabChain. And the wholesale CBDC transfer takes place on the DL3S platform. The settlement of the liabilities on ABILabChain and the wholesale CBDC were synchronized using Hash Time Locked Contract (HTLC).
For commercial banks, a tokenized deposit is effectively a digital twin. Hence, when a token is transferred, there’s also a need to transfer the offline version of the money. That is usually done via a conventional payment in central bank money. But an alternative solution is to use wholesale CBDC. The key advantage is the tokenized deposit transfer and the wholesale CBDC settlement can happen simultaneously, reducing the need for reconciliation.
JP Morgan SE ran an experiment involving a client making a deposit token transfer to another bank. The receiving bank requests redemption of the token. Hence, JP Morgan uses a smart contract that requests the receiving bank to transfer the token back to JP Morgan on the Onyx blockchain. Simultaneously, JP Morgan pays the recipient bank using the wholesale CBDC. The two sets of transactions are synchronized using HTLC.
Other wholesale CBDC trials
Other solutions tested so far included securities settlement (delivery versus payment) in separate tests by BNP Paribas for the Slovenia sovereign bond, and by the Austrian Central Bank. Those also use HTLC.
The Banque de France quietly conducted the planned cross border experiment with the Hong Kong Monetary Authority for Payment versus Payment transactions. In that case, rather than using HTLC for interoperability between the separate wholesale CBDCs, it used the Swift CBDC messaging solution.
Finally there was the Cboe Clear Europe and ABN AMRO experiment that used wholesale CBDC for collateral in margin calls. While we wrote about this before, the Banque de France highlighted that this used a Power of Attorney rather than HTLC. ABN AMRO granted Cboe Clear the Power of Attorney to act as clearing member and clearing house.
The central bank referred to all the tests as experiments. The BNP Paribas transaction used real money. We believe the two commercial bank money tests were experiments, but the others are unclear. We plan to request clarification.
The Banque de France will continue to work with banks, CCPs, CSDs, market infrastructures and fintechs until the Eurosystem trials finish in November.
Update: added clarification re experiments versus trials
