Germany’s Bundesbank has tested a blockchain-based settlement interface for electronic securities. The test demonstrates that new technologies and conventional payment systems can work to settle securities in central bank money without relying on a central bank digital currency (CBDC).
In conjunction with Deutsche Börse and the German Finance Energy, the Bundesbank announced Wednesday that, for demonstration purposes, the test had created a 10-year government bond issued using distributed ledger technology (DLT) with subsequent trading in primary and secondary markets settled in the same system.
It then developed a “trigger solution,” and connected the DLT securities system with the eurosystem’s large-value payment system TARGET2. In this interface, a “trigger” is initiated when a transaction has been settled on the DLT system, signaling to TARGET2 that money can change hands.
The project invovled a number of market participants, including Barclays, Citibank, Commerzbank, DZ Bank, Goldman Sachs and Société Générale.
A CBDC debate in the eurozone
According to the Bundesbank, this process runs counter to blockchain-based settlement using a CBDC that would tokenize assets and money.
The announcement claimed this solution could be replicated and scaled in a short space of time, compared to the length of time it would take to issue a CBDC.
In contrast with its counterparts in other countries like France and the Netherlands, the Bundesbank has been rather unenthusiastic about the launch of a digital euro, claiming it would destabilize the banking system and penalize savers.
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This is important as it can be assumed the Bundesbank would hold considerable sway in talks over the development of a digital euro, as Germany’s is the largest economy in the eurozone.
The European Central Bank (ECB) has attempted to convince the German central bank of the merits of a digital euro, with officials stating Thursday such a currency would be designed to ensure it does not compete with bank deposits.