Banque de France tests 'whole lifecycle of CBDC' in landmark transaction

France’s central bank has completed a transaction using its own digital currency, a so-called central bank digital currency (CBDC), for the first time.

It’s the latest advance in the area of wholesale CBDCs, which in the future might let banks settle large transactions more efficiently. A number of central banks around the world have been experimenting with bank-to-bank digital currency systems for the past several years.

The Banque de France transaction involved an investment firm subscribing to a fund on IZNEZ, a distribution platform underpinned by blockchain technology developed by SETL, a London-based outfit.

The companies involved in the trial say it is the first successful live settlement of a fund using CBDC tokens, which in this case were denominated in euros. Additionally, Anthony Culligan, chief engineer at SETL, told The Block it is the first time a central bank has issued CBDC onto a live market infrastructure.

“I think it represents a significant step forward in the wholesale financial services market because it transforms the way that transactions are settled,” Culligan said.

In addition to the Banque de France and SETL, Citi, Credit Agricole’s custody bank CACEIS, Groupama Asset Management, OFI Asset Management and DXC Technology were all involved in the trial.

Shares of the money market fund Groupama Enterprises were subscribed to and then redeemed on the IZNES platform using CBDC tokens created by the Banque de France. The transactions were small, at around €2 million.

Citi was involved as the commercial bank that purchased CBDC from the Banque de France on behalf of the buyer, while CACEIS played the role of custody bank. 

“The whole lifecycle of CBDC was tested through the experiment, and it all worked flawlessly,” said Culligan.

The Banque de France is not the only European central bank experimenting with CBDC applications in a wholesale environment. In December, the Swiss National Bank published a recap of Project Helvetia, a collaboration with the Bank of International Settlements. That proof-of-concept involved testing a wholesale CBDC for settling transactions on a digital assets exchange.

Neither France nor Switzerland has announced plans to issue a real-life CBDC. Still, Culligan said he perceives something of a race among central bankers to get such infrastructure up and running.

The first financial center to begin offering settlement through CBDC  “is likely to attract a significant amount of financial services volume, because it will be cheaper and easier to use than the incumbents," Culligan predicted.