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.
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.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.