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The Bank for International Settlements (BIS), Banque de France and the Swiss National Bank have concluded a successful cross-border experiment, using a wholesale central bank digital currency (CBDC).
CBDCs can be used effectively for international settlements between financial institutions, the BIS has declared following the latest CBDC experiment by the international body.
“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,” said Benoît Cœuré, head of the BIS Innovation Hub.
Moreover, it demonstrates how central banks and the private sector can work together across borders to foster innovation, he continued.
Project Jura was conducted in collaboration with a group of financial-sector firms comprising three banks, Credit Suisse, UBS and Natixis; consultancy Accenture; blockchain platform R3; and Swiss stock exchange SIX Digital Exchange.
“As a small open economy, Switzerland requires efficient and robust cross-border payment and settlement arrangements,” said Andréa M Maechler, who sits on the Swiss National Bank’s governing board.
Project Jura explores how distributed ledger technology can be successfully leveraged to map out what cross-border settlement between financial institutions could look like, she explained.
The experiment focused on the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger technology platform, which was operated by a third party.
Tokenised assets and foreign exchange transactions were settled safely and efficiently using payment-versus-payment and delivery-versus-payment mechanisms, and the experiment was conducted in a near-real setting, used real-value transactions and complied with current regulatory requirements.
Although the experiment has been deemed a success by the parties involved, wholesale CBDCs are not something that comes without risk.
Issuing wholesale CBDCs on a third-party platform and giving regulated non-resident financial institutions direct access to central bank money raises intricate policy issues. So, Project Jura explored a new approach, including subnetworks and dual-notary signing.
According to the BIS, this could give central banks comfort to issue wholesale CBDCs on third-party platforms and to provide regulated non-resident financial institutions with access to wholesale CBDCs.
This is not Banque De France’s first foray into wholesale CBDC experiments, where it has been a leader in recent years.
It has worked domestically on the issue, with platforms such as Euroclear and, over the summer, it completed another wholesale CBDC cross-border experiment in partnership with the Monetary Authority of Singapore.
The experiment, which was supported by J.P. Morgan’s Onyx, simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between the two jurisdictions.
Of the four outcomes achieved, the simulation of an experimental m-CBDC network concluded that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced.
Consequently, the number of contractual arrangements, the know your customer (KYC) burden, as well as the associated costs, can also be cut down.
“With the great success of Jura, the wholesale CBDC experiment programme launched by the Banque de France in 2020 is now completed,” said Sylvie Goulard, Banque de France’s deputy governor, continuing that Project Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which she said are “a key facet of international transactions”.
