Banque de France is not the only large-scale CBDC experiment. The Bank of England (BoE), for example, will soon conduct a similar test.
Banque de France, Banque de France, announced Results of extensive testing including wholesale Central Bank Digital Currencies (wCBDC).
The Banque de France experiment has demonstrated the operational feasibility and practical implementation of wCBDC issuance directly on distributed ledger technology (DLT).
Enhancing cross-border payments and settlement finality
Through its findings, the central bank emphasized that wholesale CBDCs could play a pivotal role in improving cross-border payments, settlement finality and the safety of a wide range of financial assets. Cross-border payments have long suffered from inefficiencies, delays and high costs. The emergence of wholesale CBDCs could mark a paradigm shift in this situation.
This will enable faster, cheaper and more transparent cross-border payments, facilitating international trade and investment. In addition, the real-time settlement finality enabled by wholesale CBDC ensures that trades are executed instantly and with irrevocable certainty.
This eliminates settlement risk, minimizes exposure to market volatility, and increases financial stability and system confidence.
Another notable aspect of wholesale CBDC potential lies in its ability to accommodate a wide variety of financial assets. From government bonds to fund shares to private financial assets, tokenized forms of central bank money could revolutionize how these assets are held and exchanged.
Traditionally, certain financial assets, especially unlisted financial assets, face limitations in terms of settlement options. The introduction of a wholesale CBDC will allow these assets to be tokenized and exchanged on digital platforms, providing a more efficient and secure payment process.
Furthermore, the Banque de France noted that the wholesale CBDC issuance will complement retail CBDCs such as the digital euro.
CBDC initiative of the Banque de France
In March 2020, Banque de France embarked on an ambitious journey to explore the potential of a wholesale CBDC. The aim was to harness the potential of cutting-edge cryptography to enhance various aspects of financial operations.
By mid-2022, Banque de France will have completed the first phase of the experiment and is ready to move to the second phase. Based on the insights gained in the first round of testing, central banks expanded the scope of their experiments to address more complex financial scenarios.
This phase allowed Banque de France to fine-tune the functionality of the wCBDC and address potential challenges that arose during the initial testing period. Through the wCBDC initiative, Banque de France has successfully completed 12 of his experiments, each investigating different aspects of digital currency applications.
Of note, one of the landmark experiments involved using wCBDC to settle €100 million ($104 million) worth of bonds with Luxembourg. The successful execution of this transaction demonstrates the potential of wCBDC in streamlining large-scale financial operations, including interbank and cross-border payments.
Meanwhile, the Banque de France is not the only large-scale CBDC experiment. The Bank of England (BoE), for example, will soon conduct a similar test.
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about the real-world applications of blockchain technology and the innovations that drive the general acceptance and global integration of emerging technologies. His desire to educate people about cryptocurrencies has also inspired his contributions to famous blockchain media and sites.