Euroclear experiment confirms blockchain as suitable technology for post-trade market operations

Commissioned by Banque de France and led by Euroclear the experiment included input from consortium of institutions.

Euroclear alongside several institutions has successfully completed an experiment which tested central bank digital currency (CBDC) for settling French treasury bonds on a test blockchain.

Banque de France commissioned the experiment in March 2020 which included input from Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, and Societe Generale.

Design expertise and all platform features were provided to Euroclear by IBM including advanced privacy-preserving tokens and hybrid cloud capabilities.

The objectives of the experiment were to check whether a large range of post-trade functionalities can be run on blockchain, to identify from a user point of view the added value of blockchain technology and CBDC for the capital markets, and to assess the potential next steps.

The CBDC experiment confirmed that blockchain can be a suitable technology for the management of post-trade market operations. It found that CBDC was able to be used to support the settlement of securities in central bank money and that post-trade operations can be run for an activity as critical for the capital markets as the management of French Treasury Bonds (OATs).

By using a permissioned blockchain approach, participants would benefit from blockchain features while making sure market operators such as CSD and central banks can continue to run the required controls.

According to Euroclear, the experiment found that the value of blockchain technology lies in the opportunity for the market to change the way it is organised so as to reduce settlement cycles, increase direct market participation and reduce reconciliation efforts.

In addition, the experiment showed the capability for blockchain platforms to coexist and interoperate with existing settlement infrastructures.

Euroclear also stated that by attracting more direct market participants on a common ledger for post-trade operations, a blockchain could also reduce the overall cost and increase the efficiency of the capital markets.

Fully aware of the challenges that still need to be overcome before blockchain platforms can be implemented in a ‘production’ environment, Euroclear still views the outcome as positive.

“We are extremely pleased to have worked on this pioneering project with our industry partners and the Banque de France. Together, we have been able to measure the degree to which the issuance of CBDC can offer fast and secure settlement of tokenised securities,” said Isabelle Delorme, deputy CEO of ESES CSDs Euroclear France, Euroclear Belgium and Euroclear Nederland.

“We are well aware that there are still challenges that need to be overcome before we can envisage the implementation of blockchain platforms in production as we continue to investigate all routes to drive efficiencies for our clients.”