French state-owned bank Caisse des Dépôts has issued a €100 million ($108 million) digital bond, which will be settled in France’s pilot wholesale central bank digital currency (wCBDC).
The digitally native notes were issued on the Euroclear’s digital financial market infrastructure (D-FMI). This infrastructure enables users to issue, distribute, and settle digital bonds on decentralized ledger technology (DLT). It taps into Euroclear’s traditional settlement platform, offering access to mainstream trading venues and other liquidity management facilities. Its one-day settlement process is a significant improvement from the traditional setup, which takes multiple business days. In October last year, the World Bank became the first issuer of D-FMI.
The bonds used the French central bank’s cash distributed ledger technology (DL3S) for the cash leg of the issuance. D3LS is Banque de France’s wholesale CBDC platform, which it uses to test the interoperability of the digital currency with existing financial systems.
Other participants in the issuance were French banking giant Crédit Agricole (NASDAQ: CRARF) and Paris-based investment bank Natixis. Europe’s largest bank, BNP Paribas (NASDAQ: BNPQF), was the issuing and paying agent. The bond is listed on Euronext Paris.
“…we wanted to participate in this digital issuance, a pioneering operation on the capital market in France, to support players in the sector working around Euroclear and the Banque de France,” commented Caisse des Dépôts’ financial policy head Nathalie Tubiana.
Caisse des Dépôts—a government-owned bank that invests in public-interest projects—joins other global banking giants in issuing digital bonds on DLT. UBS, HSBC (NASDAQ: HSBC), KfW, and Société Générale (NASDAQ: SCGLY) have all issued blockchain bonds in recent months. In particular, HSBC’s $130 million bond was the first by a private entity in Hong Kong and the first under English law.
For its part, the French top bank pointed to the issuance as yet another illustration of the supremacy of central bank money, which lends credence to its continued wCBDC tests.
“Choosing Banque de France’s Full DLT interoperability solution for settling the cash leg of this issuance stresses the importance of tokenised Central Bank Money for the development of the tokenisation of finance,” said Banque de France’s financial stability head Emmanuelle Assouan.
The central bank erected to go the wCBDC route with its digital bonds systems, parting ways with most of its peers, such as Italy and Germany, which have developed customized solutions to avoid liquidity fragmentation. Germany’s Deutsche Bundesbank developed the Trigger solution, which settles transactions on TARGET2, the Eurosystem’s real-time gross settlement system.
The Bank of Italy developed TIPS Hashlink, an interoperability mechanism built around hashed time lock contracts (HTLC) that integrates with TIPS, the ECB’s instant payments system. TIPS Hashlink hasn’t been used much. However, on October 8, Italy’s largest bank, Intesa Sanpaolo, used the system to issue €10 million ($10.64 million) in commercial paper on the Clearstream D7 tokenization platform. It’s the second time an Italian bank has leveraged TIPS Hashlink after Cassa Depositi e Prestiti’s €25 million ($26.61 million) digital bond in May.
Norway exploring CBDC for financial stability
Elsewhere, the Norwegian central bank is exploring a CBDC for financial stability but has still not committed to issuing the digital krone.
Kjetil Watne, who heads CBDC efforts at Norges Bank, says the bank has not yet decided whether to issue a retail CBDC despite the potential benefits it could offer Norwegians.
Norway joins dozens of other major economies still exploring CBDCs but has remained noncommittal about issuing these digital currencies. The allure of retail CBDCs is also fading, as confirmed by a Bank for International Settlements (BIS) report in June. Canada and Australia are among the major economies that have abandoned retail CBDCs altogether.
Norway has been exploring CBDCs for cross-border transfers, but is still uncertain about how the entire system would work, Watne told one outlet.
“We believe that an eventual CBDC will, if issued, supplement and not replace cash. We also believe that digital currencies will continue to exist in parallel with CBDCs,” he said.
For Norway, a CBDC wouldn’t target financial inclusion like most developing economies. The country has Europe’s highest banking penetration, with nearly 98% of Norwegians banked. Instant digital payments are also ubiquitous, further eating into the target market for CBDCs.
If it does issue a digital krone, Norway’s central bank will carefully tread the line between guaranteeing privacy and enforcing financial laws, Watne added. He said the bank will not monitor individual transactions, but insisted that there must be guardrails to ensure that CBDC users adhere to regulations, such as KYC and AML.
Away from CBDCs, Norway supports and intends to implement Europe’s Markets in Crypto Asset (MiCA) framework. The EU Parliament approved the framework last year, and while some aspects have already taken effect, the entire framework will become effective next year.
MiCA allows individual nations to customize the framework to suit their needs. Norway intends to leverage this as the central bank believes additional regulations may be necessary to protect investors.
Watch: CBDCs are more than just digital money
Tagged:
Banque de FranceCentral Bank Digital CurrencyDigital BondsFranceMarkets in Crypto AssetMiCANorwayTokenizationWholesale CBDC
Read the full article here
