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Today the Reserve Bank of Australia announced its planning for a proof of concept (PoC) for a wholesale central bank digital currency (CBDC) based on distributed ledger technology (DLT), or more specifically, blockchain technology Ethereum.
It involves collaboration with Commonwealth Bank, National Australia Bank, Perpetual and the US blockchain firm ConsenSys. The project is expected to be completed by the end of this year, with a report to be published in the first half of next year.
The initiative will focus on the tokenization of syndicated loans, including their financing, settlement and repayment. In addition to automation and programmability, the trials will also explore the impact of atomic delivery versus payment (DvP).
In wholesale markets, the settlement of securities is often fixed at two days and, in the meantime, there is a risk that the counterparty, the buyer, may have financial problems and not pay. By making the payment simultaneously with the delivery of the security to the asset, in this case the syndicated loan, the counterparty risk vanishes. Using atomic transactions, if the payment fails, both sides of the transaction fail, so the buyer does not get the title of the asset.
“With this project, we intend to explore the implications of CBDC for efficiency, risk management and innovation in wholesale financial market transactions,” said Michelle Bullock, assistant governor of the Reserve Bank. “While the case for the use of a CBDC in these markets remains an open question, we are delighted to work with industry partners to explore whether there is a future role for a wholesale CBDC in the Australian payments system.”
One of the reasons for questioning the need for DvP is that the vast majority of current systems involved clearing between banks. This often means that less money is required at a single time, and there are also far fewer payment transactions.
Etnereum appearing in several CBDC projects
In recent weeks, ConsenSys has announced involvement in multiple projects with central banks, indicating that several central banks are exploring Ethereum technology. Last week, Consensys said it is developing a PoC with the Bank of Thailand for retail CBDC, or digital baht. Until now, his CBDC initiative used R3’s Corda technology. ConsenSys is also collaborating with the Hong Kong Monetary Authority (HKMA) for the cross-border payment process with Thailand, as part of the second phase of the Inthanon-LionRock project.
In Europe, Consensys announced a collaboration with Societe Generale Forge on CBDC testing with the Banque de France. Unlike the projects with the Bank of Thailand and HKMA, in this case, Société Générale Forge is one of eight groups working with the central bank. And ConsenSys is one of the numerous companies with which Societe Generale Forge collaborates. So, in total, dozens of companies are working with the French central bank.
Accenture has partnered with numerous central banks and has used R3 Corda on most occasions.
