Banque de France invites applications to experiment with wholesale CBDC solutions

http://www.linklaters.com/en/insights/blogs/fintechlinks/2020/april/banque-de-france-invites-applications-to-experiment-with-wholesale-cbdc-solutions
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France’s central bank is inviting eligible European institutions to apply to test central bank digital currency solutions for interbank settlement. This comes as the Bank of England seeks views on a retail CBDC model. Selected applicants will have the opportunity to design and create experiments with the benefit of key resources from the Banque. The results will feed into discussions at a Eurosystem level on the viability of a euro CBDC. The deadline for submissions is 15 May 2020.

Call for applications

The French central bank has issued a call for applications, inviting eligible institutions to apply to test central bank digital currency solutions for interbank settlement. It wants to see how conventional use cases for central bank money can be achieved through a CBDC based on innovative technologies, and to assess the associated risks and benefits.

The results of these experiments will feed into work being carried out at the Eurosystem level, and any decision to issue a euro CBDC will ultimately be taken by the European Central Bank. From the BdF’s perspective, “the primary reason for issuing a CBDC would be to offer a perfectly liquid and safe payment instrument that is adapted to technological changes.”

Wholesale vs Retail

The BdF’s initiative is aimed at exploring alternative means of providing financial intermediaries with central bank money. This is in contrast to the CBDC model recently outlined by the Bank of England, which involves an electronic form of central bank money for retail use. In other words, whilst the Bank of England is considering a substitute for cash, the Banque de France is looking at substitutes for deposits held by financial institutions in accounts with the central bank (i.e. reserves).

Three interbank use cases

Applicants will need to propose an experiment covering at least one of the following use cases:

  • Delivery vs payment: i.e. payment in the model CBDC against the delivery of listed or unlisted financial instruments.
  • Payment vs payment: i.e. payment in the model CBDC against payment in the digital currency of another central bank.
  • Payment vs delivery of digital assets: i.e. payment in the model CBDC against delivery of digital assets (as defined in the French Monetary and Financial Code).

The model CBDC may represent central bank money in token form or through any other dematerialisation process.

Resources from the Banque

The BdF will help facilitate the experiments of up to ten successful candidates by, for example:

  • issuing the model CBDC;
  • enabling finality of the payment transactions to take place in the French component of Target2; and
  • providing an interface with Target2-Securities for delivery vs payment transactions, as required.

Target2 is the leading European payment system for processing large-value payments. Target2-Securities is a related platform which enables securities to be exchanged simultaneously against payments.

No new money will be created in this process; any CBDC issued will be destroyed on the same day.

Who is eligible to apply?

The Banque has set out a long list of eligibility criteria. Among other things, these require applicants:

  • to be established in the EU or European Economic Area;
  • to have (or have a member with) a payment account in the French component of Target2 or be an indirect or addressable participant of a direct participant; and
  • if addressing the delivery vs payment use case, to be (or have a member which is) a participant of a central securities depository in Target2-Securities. 

Applicants are free to choose which technologies they use, as long as they are of an innovative nature.

Next steps

The deadline for applications is 15 May 2020 at 3pm (CET) and interviews will take place in June. Successful applicants will be announced on 10 July and invited to proceed to the design phase of experimentation.

http://www.linklaters.com/en/insights/blogs/fintechlinks/2020/april/banque-de-france-invites-applications-to-experiment-with-wholesale-cbdc-solutions