Central Banks of France, Switzerland and BIS Complete Cross-Border CBDC Trial

Central Banks of France, Switzerland and BIS Complete Cross-Border CBDC Trial

Bank of France, the Swiss National Bank (SNB), and the Bank for International Settlements have successfully tested the application of wholesale central bank digital currency in cross-border payments. The project used distributed ledger technology and was realized with help from private firms.

France and Switzerland Explore Direct Transfer of Euro, Swiss Franc Wholesale Digital Currencies

An experiment carried out by the monetary authorities of France, Switzerland and the Bank for International Settlements (BIS) has indicated that central bank digital currencies (CBDCs) can be used effectively for international settlements between financial institutions, the participants in the trial announced.

Project Jura, which has been completed recently, focused on settling foreign exchange transactions in euro and Swiss franc wholesale CBDCs as well as issuing, transferring, and redeeming a tokenized euro-denominated French commercial paper between French and Swiss financial institutions, the banks explained.

The trial involved the direct transfer of euro and Swiss franc wholesale CBDCs between commercial banks in France and Switzerland on a single distributed ledger platform operated by a third party and with real-value transactions. It was conducted in collaboration with the private companies Accenture, Credit Suisse, Natixis, R3, SIX Digital Exchange, and UBS.

According to the partners, issuing wholesale CBDCs by providing regulated non-resident financial institutions with direct access to central bank money raises certain policy issues. To address these, they took a new approach, employing subnetworks and dual-notary signing which is expected to give central banks confidence to issue wholesale CBDCs on third-party platforms. Benoît Cœuré, who heads the BIS Innovation Hub, commented:

Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions. It also demonstrates how central banks and the private sector can work together across borders to foster innovation.

“Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which are a key facet of international transactions,” added Sylvie Goulard, deputy governor of Banque de France.

The wholesale CBDC experiment is part of a series of trials launched by Bank of France last year and a continuation of the testing carried out under SNB’s Project Helvetia. It also contributes to the ongoing work on cross-border payments at G20, the central banks remarked while also noting that it should not be viewed as a plan on their part to issue wholesale CBDCs.

Do you think Bank of France and the Swiss National Bank will eventually issue wholesale CBDCs? Let us know in the comments section below.

Bank for International Settlements States True Decentralized Finance Is an ‘Illusion’

bank for international settlements

The Bank for International Settlements (BIS), a finance organization comprised of several central banks, has stated that while the objective of decentralized finance is to move control of financial tools away from current financial institutions, it just provides an ‘illusion’ of doing so. The organization argues that there is some kind of centralization around governance tokens and that this extends to proof-of-stake (PoS) consensus chains.

Bank for International Settlements Criticizes Decentralized Finance’s Raison D’etre

The Bank for International Settlements (BIS), a group of central banks, has addressed the rise of decentralized finance applications and their current impact on capital markets. The bank has criticized cryptocurrencies before, and now, in its latest quarterly review, the organization issued a report called “Defi risks and the decentralization illusion,” where it questions the ethos of the sector, and declares there is no real decentralization in it.

The report states that the current implementation of defi has little to no influence in bringing financial freedom to the masses, as it is a self-contained environment. The report stresses:

At present, (defi) has few real-economy uses and, for the most part, supports speculation and arbitrage across multiple cryptoassets. Given this self-contained nature, the potential for defi-driven disruptions in the broader financial system and the real economy seems limited for now.

Decentralization Is an ‘Illusion’

Furthermore, BIS criticizes the way in which defi declares its total decentralization when compared to the traditional financial market. The organization argues that this decentralization is just an illusion and that the execution of defi today also carries centralization risks.

The report states that:

All deFi platforms have an element of centralization, which typically revolves around holders of “governance tokens” (often platform developers) who vote on proposals, not unlike corporate shareholders.

In addition, it makes the case for defi protocols to be considered legal entities due to this governance element. As most of the chains that host decentralized finance protocols are driven by proof-of-stake consensus algorithms, this also leads to some kind of centralization in the hands of big token bagholders.

Another interesting source of centralization, according to the review, are the growing links that the traditional finance world is establishing with these new protocols. This could cause spillover from traditional finance and from bridging companies to defi, affecting the operations of these protocols significantly.

What do you think about the latest report from the Bank for International Settlements, and its conclusions? Tell us in the comments section below.