BIS Experiment Finds CBDCs to Be Effective in Cross-Border Settlements

Central bank digital currencies (CBDCs) can be effective in carrying out international transactions between financial institutions according to a recently concluded experiment by the Bank for International Settlements (BIS), an umbrella group for central banks.

A report published Wednesday said the “Project Jura’' experiment took place over three days in November, and was conducted by the central banks of France and Switzerland alongside the BIS Innovation Hub. Project Jura was announced in June and is part of a series of CBDC experiments launched by the Bank of France in 2020.

The test examined the effectiveness of wholesale CBDCs – a type of digital asset that can be used only by permitted financial institutions – in a range of cross-border settlements. The total cash value of the experiment was €200,000 ($226,000).

According to the report, Jura not only explored how central banks could give non-resident commercial banks access to CBDCs, but also the capabilities of distributed ledger technology in recording these transactions.

“Our main conclusion is that wholesale CBDCs can settle such transactions both safely and efficiently,” said Benoît Cœuré, head of the BIS Innovation Hub, during a press briefing on Wednesday.

Jura is the latest in a series of projects by the BIS Innovation Hub testing possible applications of CBDCs. Earlier this year, Project mCBDC Bridge found wholesale CBDCs could potentially reduce the cost of international transactions while improving settlement speed. Under the mCBDC project, the BIS Innovation Hub center in Hong Kong is working with central banks in Hong Kong, Thailand, China and the United Arab Emirates to build a prototype platform for testing the use of multiple CBDCs for cross-border settlements.

Project Jura also continues the work of the Swiss National Bank’s Project Helvetia, which was set up in 2019 to experiment with settlements involving tokenized assets using wholesale CBDCs. To conduct the latest experiment on wholesale CBDCs, the BIS Innovation Hub and the central banks of Switzerland and France collaborated with private firms like Accenture, Credit Suisse, Natixis and UBS.

The experiment

Starting on Nov. 15, Jura tested the direct transfer of euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks for three days, the report said. The transfers were conducted on a single distributed ledger operated by a third party, according to a press statement issued by the BIS.

It also tested issuing, transferring and redeeming “tokenized euro-denominated French commercial paper” between French and Swiss financial institutions. Commercial paper represents unsecured, short-term debt issued by corporations. Tokenization allows a real asset like commercial paper to be digitally represented on a blockchain or distributed ledger.

According to the report, the tests were conducted using “real-value transactions within the existing legal and regulatory frameworks.” The report emphasized the project was not part of a regulatory sandbox, which added “significant complexity” and realism to the experiment.

On the first day of the experiment, Natixis issued €200,000 in tokenized commercial paper against the wholesale CBDCs and sold it to UBS. In the following days, there were commercial paper transfers between the two Swiss banks, alongside a number of foreign-exchange transactions.

“We wanted to show that we could settle a digital asset and then transfer the proceeds to a different jurisdiction in a real-life environment, abiding by local laws,” Cœuré said.

The report suggests that, based on the experiment, an intraday, wholesale CBDC could have a positive impact on financial stability and limited influence on monetary policy. But Sylvie Goulard, deputy governor of the Bank of France, said that the scale of the experiment was too limited to arrive at broader conclusions.

“We cannot pretend that what we did with €200,000 and a certain type of settlement can be extrapolated for everything, but it is a first step,” Goulard said during the briefing.

UPDATE (Dec. 8, 16:15 UTC): Adds link to report and adds Bank of France quote in last paragraph.