Eurosystem exploratory work on settlement in central bank money using new technologies: first batch of experiments successfully completed by the Banque de France with DL3S extended functionalities on automated wholesale payments

In collaboration with the Italian Banking Association Innovation Lab (ABI Lab) and 8 of its banking partners, the Banque de France settled, in its DL3S platform and in a tokenised representation of central bank money (CeBM), several automated wholesale payments instructed by ABI Lab’s Leonidas DLT (Distributed Ledger Technology) platform.

Leonidas is an emanation of the highly successful Spunta project launched by ABI Lab in 2020, which now manages 200 million transactions yearly. Leonidas aims at calculating and settling liquid balances between participating banks, and experimenting settlement in central bank money. 

A similar experiment has been completed with JP Morgan S.E. using its ONYX DLT platform. 

As part of these experiments, Leonidas and DL3S in the former, and ONYX and DL3S in the latter, exchanged instructions to lock and release funds in commercial bank money representing claims and receivables between the parties in Leonidas, automated tokenised payments issued by JP Morgan S.E. between JP Morgan’s clients in ONYX, and CeBM in DL3S, using the Hash Time Locked Contract (HTLC)¹  interoperability protocol. This was the first experiment in the Eurosystem exploratory work combining settlement in tokenised commercial bank money (so-called tokenised deposits) and central bank money in a tokenised form.

This achievement complements the success of several other experimentations carried out since May and leveraging the other functionalities, with:
•    the Austrian Central Bank (Oesterreichische Nationalbank – OenB) and BNP Paribas on the settlement of securities through delivery versus payment mechanisms (DvP) using HTLC;
•    the Hong Kong Monetary Authority (HKMA) on Payment versus Payment (PvP) operations, using a Swift enabled interoperability mechanism;
•    Cboe Clear Europe N.V. and ABN AMRO Clearing Bank N.V. on the settlement of margin calls through Payment and Power of Attorney mechanisms² .

The Eurosystem exploratory work launched by the European Central Bank has gathered huge interest from the market, and demonstrates the appetite for using central bank money to settle financial transactions for emerging tokenised assets, natively issued or replicated on DLTs. The Banque de France solution now offers the possibility to settle in a tokenised form of central bank money DVP, PVP and automated wholesale payments, on DL3S, an in-house built platform developed and experimented since 2020. The Banque de France will experiment with several financial institutions (banks, CCPs, CSDs, market infrastructures, Fintechs) until November, to contribute to the Eurosystem ongoing assessment of the potential benefits brought by new technologies to financial markets. This work will guide the reflection on the follow-up actions to support the sovereignty of central bank money and foster innovation.
 

 ¹ A Hash Time Locked Contract or HTLC is a class of payments that use hashlocks and timelocks to require that the receiver of a payment either acknowledges receiving the payment prior to a deadline by generating cryptographic proof of payment or forfeits the ability to claim the payment, returning it to the payer.
 ² Power of Attorney (PoA): a PoA gives a designated party the right to credit or debit a third party cash account. This mechanism is used by CCPs (Central Counterparties) to collect margins. In this experiment, a PoA has been granted by ABN Amro Clearing bank to CBoE respectively acting as clearing member and Clearing House.
 

For more information: Wholesale central bank digital currency (banque-france.fr)