The French Central Bank is not alone in conducting wholesale CBDC experiments. For example, the Bank of England (BoE) is set to conduct a similar test soon.
The Banque de France’s experiments have showcased 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 has emphasized 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 been plagued by 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. Moreover, the real-time settlement finality enabled by the wholesale CBDC ensures that transactions are executed instantly and with irrevocable certainty.
This eliminates settlement risk and minimizes exposure to market fluctuations, enhancing financial stability and confidence in the system.
Another remarkable aspect of the wholesale CBDC’s potential lies in its ability to accommodate a diverse array of financial assets. From government bonds to fund shares and unlisted financial assets, the tokenized form of central bank money can revolutionize how these assets are held and exchanged.
Traditionally, certain 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 exchanged on a digital platform, providing a more efficient and secure settlement process.
Furthermore, the French Central Bank noted that issuing a wholesale CBDC would complement a retail CBDC such as a digital euro.
The French Central Bank’s CBDC Initiative
In March 2020, Banque de France embarked on an ambitious path to explore the possibilities of a wholesale CBDC. The objective was to harness the potential of cutting-edge crypto technologies to enhance various aspects of financial operations.
By mid-2022, Banque de France had completed the initial stage of experiments and was ready to move into the second phase. Building on the insights gained from the first round of tests, the central bank expanded the scope of its experiments to address more complex financial scenarios.
This phase allowed Banque de France to fine-tune the wCBDC’s functionalities and address any potential challenges that arose during the initial testing period. Throughout its wCBDC journey, Banque de France successfully completed twelve experiments, each exploring different aspects of the digital currency’s application.
Notably, one of the groundbreaking experiments involved settling a bond worth 100 million euros ($104 million) with Luxembourg using the wCBDC. The successful execution of this transaction demonstrated the potential of the wCBDC in streamlining large-scale financial operations, including interbank and cross-border settlements.
Meanwhile, the French Central Bank is not alone in conducting wholesale CBDC experiments. For example, the Bank of England (BoE) is set to conduct a similar test soon.