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Bank of France Tests Out Potential Central Bank Digital Currency by Launching Experiment Program

The Bank of France (Banque de France) is launching a program of experiments testing out a potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants are being invited to submit their applications, as the Bank of France is calling for applications to experiment with the use of a digital euro.

The French central bank is open to test out new technology, although it did not specify using blockchain. The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement.

A maximum of ten CBDC-related applications created by groups or individuals will be selected based on “innovative nature” as a major criterion for selection. The French central bank is only accepting applications submitted by applicants within the European Union, or in a state party to the European Economic Area agreement. Applicants are welcomed by the bank to submit their applications until May 15, 2020, and the results of the selection process will take place on July 10, 2020.

The document states that the results of these experiments will “act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.”

The French CBDC vs. the digital Euro

Four months ago, at the Global Blockchain Congress which took place in Malaga, Spain, the European Central Bank (ECB) confirmed that it has been working on a digital Euro. The Association of German Banks released a detailed plan for a crypto-based digital Euro, which will be launched by regulators.

Dirk Bullman, Innovation Team Leader of the ECB said, “The ECB is exploring the matter. I think that should be made clear. We are doing theoretical research, but we are also doing practical experimentation. And we look at what we call, a wholesale CBDC and we also look at retail, general-purpose CBDC.”

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Bank of France Becomes the First to Successfully Test Out the Digital Euro on Blockchain

The French Central Bank, Banque de France has recently successfully trialed a central bank digital currency (CBDC) – the digital euro, operating on a blockchain.

The Bank of France experimented with the use of a central bank digital currency to test a sale of securities, which was carried out by Société Générale Forge.

Banque de France launched a program of experiments to test out potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants have been invited to submit their applications to experiment with the use of a digital euro.

The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement.

A maximum of ten CBDC-related applications created by groups or individuals would be selected based on “innovative nature” as a major criterion for selection. The French central bank is only accepting applications submitted by applicants within the European Union, or in a state party to the European Economic Area agreement. The results of the selection process will take place on July 10, 2020.

Banque de France is looking to trial new experiments in the coming weeks with other industry players, as the call for applications started on March 27.

Although the official announcement did not specify the exact details of the current pilot program, it did emphasize that the current pilot program is focusing on wholesale rather than the retail market of the uses of the digital euro.

In November 2019, at the Global Blockchain Congress which took place in Malaga, Spain, the European Central Bank (ECB) confirmed that it has been working on a digital euro. The Association of German Banks released a detailed plan for a crypto-based digital Euro, which will be launched by regulators.

The Dutch claims CBDC has gained more exposure in the Netherlands than other euro areas

The Dutch central bank, De Nederlandsche Bank said that it aims to become the euro leader in the development of central bank digital currencies. The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

De Nederlandsche Bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

The European Central Bank (ECB) previously expressed its interest in launching a digital Euro and stated that they have been doing theoretical research and practical experimentation. The report stated that the Netherlands could be a suitable testing ground for its testing. Even after evaluating the potential risks of CBDCs, the Dutch central bank said, “We are ready to play a leading role.”

Bank of France Announces HSBC, Accenture Among the 8 Successful Applicants of the CBDC Experimentation Program

Earlier this year, Banque de France, the French central bank launched a program of experiments to test out the potential central bank digital money aimed for interbank settlements.

Potential participants have been invited to submit their applications to experiment with the digital euro, and Banque de France announced the 8 successful applicants: Accenture, Euroclear, HSBC, Iznes, LiquidShare, ProsperUS, Seba bank, and Société Générale Forge.

The program of experiments was launched in late March 2020, where the central bank asked participants to submit their applications before May 15, 2020. The French central bank is open to test out new technology, although it did not specify using blockchain. The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement. It was noted that a maximum of ten CBDC-related applications created by groups or individuals will be selected based on “innovative nature” as a major criterion for selection.

The successful candidates will be able to explore new methods of exchanging financial instruments, excluding cryptocurrencies against the CBDC. Testing of the regulation of the digital euro in order to improve the conditions of execution of cross-border payments and the successful applicants could also review the methods of making CBDC available.

The French central bank will be working closely with the 8 successful applicants to carry out the experiments in the coming months.

The official report from the Bank of France read:

“The lessons learned from these experiments will constitute a direct contribution to the more global reflection conducted by the Eurosystem on the benefits of a central bank digital currency. These experiments also illustrate Banque de France’s commitment to innovation, which was recently chosen to host, with the Deutsche Bundesbank and the European Central Bank, a new joint innovation center in Europe within the framework of the Innovation Hub of the Bank for International Settlements.”

Banque de France successfully trialed its first experiment with the digital euro on blockchain, to test a sale of securities, which was carried out by Société Générale Forge.

The Dutch Central bank also wants to play a role in developing a CBDC in Europe

The Dutch central bank, De Nederlandsche Bank made an announcement in its bulletin, saying that it aims to become the European leader in the development of CBDCs. The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

The Dutch central bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

French Central Bank Succeeds in CBDC Experiment in the Issuance of a Government Bond

The Banque de France or Bank of France, the central bank of France, has prospered in undertaking an experiment on using a central bank digital currency (CBDC) to issue a French government bond.

As per the announcement:

“The experiment consisted in the simulation on a permissioned blockchain of Government bonds’ (OAT) issuance by Agence France Trésor, followed by several secondary market operations performed on these bonds.”

Cash settlements were simulated using the blockchain-powered CBDC. The Bank of France experimented on the 21st and 24th of this month in collaboration with a group of economic players led by Euroclear. The program launched in March last year.

CBDCs are digital assets pegged to a real-world asset and backed by the central banks, meaning that they represent a claim against the bank exactly how banknotes work. Furthermore, they are blockchain-enabled, representing a new technology for issuing central bank money at the wholesale and retail level.

The interoperability between legacy and distributed architectures

Nathalie Aufauvre, the general director of financial stability and operations at Bank of France, noted:

“As a new achievement such as to explore wholesale CBDC potential, this experiment allowed testing for the first time financial optimisation on a blockchain with REPO operations, as well as the synchronisation of collateral operations between the blockchain and the European platform for securities settlement Target 2 Securities.”

He added:

“This provides a very good illustration of interoperability between legacy and distributed architectures.”

The experiment also entailed creating and deploying smart contracts so that the French central bank could issue and control the circulation of CBDC tokens, triggering their simultaneous transfer as a result.

Meanwhile, The Bank for International Settlements (BIS) recently disclosed its full backing for the development of CBDCs by central banks to pursue financial and monetary stability through international cooperation.

Bank of France Conducts CBDC Test to Settle Listed Securities

The French Central Bank, Banque de France, has completed one of its series of experiments using a central bank digital money (MNBC).

According to the official publication, the experiment targeted settling listed securities and drew SEBA Bank as a partner in the experiment.

Through the experiments, MNBCs were used to simulate the settlement of listed securities and thus trigger their delivery in TARGET2-Securities (T2S). The settlement was based on existing conditional delivery of securities functionality ( T2S Conditional Securities Delivery – CoSD ).

From a technological point of view, the entire experiment to the Bank of France simulates the issuance of MNBC on a public blockchain. This was done to maintain adherence to preserving the control and confidentiality of transactions based on the development and deployment of a dedicated smart contract.

“This experiment has made it possible to demonstrate the possibilities of interactions between conventional infrastructures and distributed infrastructures, and paves the way for other alliances to take advantage of the opportunities offered by financial assets in a blockchain environment,” said Nathalie Aufauvre, Director General of Financial Stability and Operations of the Banque de France.

The pursuit of CBDCs and the associated testing has become commonplace amongst the majority of central banks today. With China taking the lead in developing and testing its Digital Yuan, other major economies, including the United States and Great Britain, are also actively exploring government-backed digital currencies.

Besides SEBA bank, the French Central Bank conducted the latest experiment in line with other partners, including Banque Internationale à Luxembourg and LuxCSD. According to the bank, the discoveries made in these experiments will help the European Central Bank in the broader pursuit of the digital euro.

As Central Banks accelerate development and research into CBDCs, there are growing expectations that new regulations may be introduced to prevent competition from privately issued stablecoins.

France Central Commission Proceeds CBDC-Backed Treasury Bond Trials

Banque de France, the Central Bank of France, commissioned a trial involving the settlement of treasury bonds using Central Bank Digital Currencies (CBDCs) in a blockchain-backed environment.

Local media reported the trial is conducted by a consortium of 500 financial institutions led by Euroclear, also include counts Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, and Societe Generale as members.

IBM designed the blockchain environment for testing the Treasury Bonds. The trial features securities issuance, primary and secondary market trades, liquidity optimization mechanisms like repo, and interest payments. Throughout the test, up to 500 instructions cutting across both primary and secondary markets were recorded. Isabelle Delorme, a deputy CEO of ESES CSDs Euroclear, said:

“Together, we have been able to measure the degree to which the issuance of CBDC can offer fast and secure settlement of tokenised securities. We are well aware that there are still challenges that need to be overcome before we can envisage the implementation of blockchain platforms in production as we continue to investigate all routes to drive efficiencies for our clients,”

As one of the frontline nations in the European Union and a G7 key member, France has been doing all it can to chart a viable course for its embrace of CBDCs, and blockchain technology as a whole. The Euroclear-backed CBDC-Treasury Bond settlement was a part of the Central Bank’s initiative to explore the integrative capabilities of an eventual CBDC on the country’s core financial markets.

Many countries are also testing out the capabilities of their proposed CBDC issuance, in a bid to prepare all necessary environments for the new form of money to integrate easily into existing financial and economic terrain. China is amongst the nations with advanced CBDC trails, as it has conducted small-scale retail transactions for its proposed Digital Renminbi. Other nations with noteworthy CBDC trials include but are not limited to Switzerland and Lithuania.

France & Switzerland Central Banks Succeed Pilot CBDC Trials in Conjunction with BIS

The trio of the Central Banks of France, Switzerland, and the Bank of International Settlements (BIS) has successfully conducted a wholesale Central Bank Digital Currency (wCBDC) trial involving both country’s fiat notes.

The BIS revealed the “experiment programme launched by the Banque de France (BdF) in 2020 has been completed”. It also involved third-party technology service providers, including Accenture, Credit Suisse, Natixis, R3, SDX, and UBS.

The trial dubbed project Jura featured the direct transfer of Euro and Swiss Franc wCBDCs between French and Swiss commercial banks on a single DLT platform operated by a third party. The funds were transferred in strict adherence to each country’s extant laws. Project Jura also featured tokenised asset and foreign exchange trades that were settled safely and efficiently using payment versus payment (PvP) and delivery versus payment (DvP) mechanisms.

All the experiments were conducted in a near‑real setting, and it also utilised real‑value transactions, all of which met current regulatory requirements.

“Jura demonstrates how wholesale CBDC can optimise cross‑currency and cross‑border settlements, which are a key facet of international transactions.” Sylvie Goulard, Deputy Governor, Banque de France.

Despite the dogged race to float government-backed digital money and the success of project Jura, it gives no guarantee that either of the participating countries will be launching digital fiat notes of their respective currencies. Project Jura exposes some important factors that Central Banks looking to design a CBDC must adhere to. Some of these include staying abreast of technological innovations that can be fast-paced in distributed ledger technologies.

“Broadening the use of central bank money through wider access or increased cross‑border settlement could catalyse these changes, as could deeper integration of currencies with other digital assets and securities,” the report concludes.