The Banque centrale de France is not alone in carrying out wholesale CBDC experiments. For example, the Bank of England (BoE) is expected to perform a similar test soon.
The French central bank, the Banque de France has unveiled the results of extensive testing involving wholesale central bank digital currency (wCBDC).
Banque de France experiments have demonstrated the operational feasibility and practical implementation of issuing wCBDC directly on Distributed Ledger Technology (DLT).
Improving cross-border payments and settlement finality
In its findings, the central bank pointed out that a wholesale CBDC could play a pivotal role in improving cross-border payments, settlement finality, and security for a wide range of financial assets. Cross-border payments have long suffered from inefficiencies, delays and high costs. The advent of a wholesale CBDC could mark a paradigm shift in this landscape.
This would lead to faster, cheaper and more transparent cross-border payments, facilitating international trade and investment. Additionally, the real-time settlement finality enabled by the wholesale CBDC ensures that trades are executed instantly and with irrevocable certainty.
This eliminates settlement risk and minimizes exposure to market fluctuations, thereby improving financial stability and confidence in the system.
Another remarkable aspect of the wholesale CBDC’s potential is its ability to accommodate a wide range of financial assets. From government bonds to fund shares and unlisted financial assets, the token form of central bank money can revolutionize the way these assets are held and traded.
Traditionally, some financial assets, especially unlisted ones, face limitations in terms of settlement options. With the introduction of a wholesale CBDC, these assets can be tokenized and traded on a digital platform, providing a more efficient and secure settlement process.
Additionally, the French Central Bank noted that issuing a wholesale CBDC would complement a retail CBDC such as a digital euro.
The CBDC initiative of the Central Bank of France
In March 2020, the Banque de France embarked on an ambitious path to explore the possibilities of a wholesale CBDC. The goal was to harness the potential of advanced cryptographic technologies to improve various aspects of financial operations.
By mid-2022, the Banque de France had completed the initial phase of experiments and was ready to move on to the second phase. Building on the insights gained from the first round of testing, the central bank has broadened the scope of its experiments to address more complex financial scenarios.
This phase allowed the Banque de France to refine the functionality of the wCBDC and address potential challenges that arose during the initial testing period. Throughout its wCBDC journey, the Banque de France has carried out twelve experiments, each exploring different aspects of the application of digital currency.
Notably, one of the groundbreaking experiments involved settling a bond worth €100 million ($104 million) with Luxembourg using the wCBDC. The successful execution of this transaction demonstrated the potential of wCBDC in streamlining large-scale financial operations, including interbank and cross-border settlements.
In the meantime, the French Central Bank is not alone in conducting wholesale CBDC experiments. For example, the Bank of England (BoE) is expected to perform a similar test soon.
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about real-world applications of blockchain technology and innovations to drive mainstream acceptance and global uptake of emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain media and sites.
