Babbitt Column | Interpretation of the French Central Bank's Digital Currency Experiment: Open Cooperation Institution Recruitment officially launched in the third quarter

Author: clear air, starting in Babbitt Information

At a meeting in late December 2019, the French central bank's governor, Francois Villeroy de Galhau, announced that France will soon begin testing the central bank's digital currency (CBDC), preparing to launch this before the end of the first quarter of 2020. jobs.

Three months later, on March 27, the French central bank actually announced an important document, the "BoC's Proposal on Application for Participation in the Central Bank's Digital Currency Experiment", which started this work as scheduled. This document was also the first on the CBDC issued by the Bank of France. The recruitment documents for the experiment made very clear and specific provisions on the background and purpose of the central bank experiment, experimental use cases, reporting requirements, selection criteria, support and guidance, etc., which revealed that the French central bank conducted the CBDC experiment, and its purpose was to "provide Broader discussions within the euro system and decisions on whether to establish a CBDC. These tests are not intended to be sustained in the long term, nor are they intended to be implemented on a large scale by the French central bank itself. "Just as Villerois said in that speech As a central bank, we must respond to this call for innovation as private cryptocurrencies and technology accelerate development, and public and political needs continue to grow. To put it plainly, we can't be left behind in this innovation air.

The experiment was coordinated by the Bank of France's Comprehensive Financial Stability and Operations Bureau, with the support of the Bank's Open Innovation Lab. Applicants who meet the requirements for experimental recruitment submit their application materials before 3 pm (Central European Time) on May 15, 2020. After interviews and other links, a maximum of 10 applicants will be determined on July 10, 3 days later After signing the experimental cooperation contract, the French Central Bank ’s CBDC experiment began. Incidentally, in addition to the part of the cost of participating in the experiment, the applicant shall bear the other costs.

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The main content of the recruitment letter is as follows:

I. Experiment Purpose, Use Cases and Business Scope

 

According to the prospectus, this experiment has three purposes: one is to demonstrate the use of CBDs of different technology types to achieve the conventional use of central bank currency; the second is to determine the benefits of issuing a CBDC to the current ecosystem and understand the role of CBDC in promoting financial innovation The third is to analyze the potential impact of issuing a CBDC on financial stability, monetary policy and the regulatory environment.

The so-called different types of CBDC refers to the wholesale CBDC used for interbank settlement. There are three specific use cases for the Bank of France experiment:

Payment transactions with financial instruments : use tokens (or other non-physicalization processes) to represent the currency of the central bank to make payments and complete the delivery (delivery-payment) of listed or unlisted financial instruments;

Payment transactions with other CBDC : using tokens (or any other dematerialized process) representing the central bank's currency to pay for another central bank's digital currency (pay-pay)

Payment transactions with digital assets : Use tokens (or any other dematerialized process) representing the central bank's currency to pay for digital assets as defined by the French Currency and Financial Code.

The CBDC used in the above three use case experiments has no legal effect, but only represents the central bank currency on the day the payment is completed. In other words, the tokens used in this experiment are only a temporary substitute for completing the payment, and they will be converted into central bank currency after the payment is completed. This is similar to the DR (Depository Receipt, DR) used in the testing of the Jasper project in Canada. It only exists during business hours and is converted into fiat currency at 1: 1, which has no impact on the central watch. The use of DR for payment settlement is the full and irreversible transfer of currency claims of the central bank it represents, so there is no credit risk.

From the experimental use cases, compared with similar experiments carried out by central banks in other countries, the Bank of France's experimental innovation is reflected in its attempt to use the euro's CBDC to conduct transaction payments with other CBDC and digital assets.

The scope of the experiment includes testing functions such as management data, issuing tokens and token settlement processes, the triggering system for central bank currency payments, audit trails, and supervisory monitoring mechanisms.

Experimental content undertaken by the French central bank

 

Issuance of tokens : According to the technical procedures determined for each experiment, the issuance of tokens (or any other non-physicalization process) representing the currency of the central bank is provided for use by participating institutions on the day of the experiment.

Account settlement : Provide TARGET2 French subsystem for participating institutions to conduct account settlement experiments. The full name of TARGET2 is the second-generation pan-European real-time full automatic clearing system, which was launched in 2007 to replace the original TARGET system. The TAGET system is composed of the real-time full settlement system of the EU member states, the European Central Bank payment institution and the interconnection system. The payment settlements undertaken by the system include payments related to the implementation of the central bank's monetary policy, large-value clearing, and inter-bank payment settlement. Liquidation using TARGET is irrevocable and final. The aforementioned three experimental use cases all need to be performed in the French subsystem of the TARGET system. Participating institutions must have an account with this system to participate in the experiments. Therefore, the requirements for the applicant stipulate that no matter what kind of experimental use case is applied for, it must have a TARGET2 French subsystem payment account or a direct or indirect participating institution of the system.

Provide interface : Provide the interface of Target2-Securities for participating institutions. Target2-Securities is a new European securities settlement platform that allows central securities depositories to manage securities delivery-payments in central bank currencies in accordance with European Central Bank guidelines for Target2-Securities. One of the aforementioned experimental use cases is the payment transaction between CBDC and financial instruments. Therefore, there is a requirement in the applicant's request that "if the experimental case submitted by the applicant includes the payment of central bank currency to complete the delivery of financial instruments, he or his member At least one participant must be a central securities custodian of the Target2-Securities platform. "

In addition, the French Central Bank also provides some or all of delivery-payment (DVP) and payment-payment (PVP) services as required.

The central bank said that the technology used in the experiment "does not impose any specific technological choices", with innovation as the selection criterion.

Third, the experimental process

 

An applicant can apply to cooperate with the central bank to conduct multiple use-case experiments, each of which is jointly conducted with the central bank, and is divided into the following three stages:

Design phase : Including the establishment of a research and development team, determination of operating procedures and IT architecture, verification of functional and non-functional requirements expression.

Prototyping phase : Provide technical environment, IT R & D, perform tests using fictional data, analyze business impact and result characteristics.

Experimental phase : Perform business operations, formally record data and analysis results.

After the first two stages of work are completed, an assessment is performed. If any risks are found that conflict with the existing regulatory framework, the central bank has the right to decide whether to enter the next stage of experimental activities.

Wholesale-type CBDC has precedents for inter-bank payment and securities settlement. For example, the Bank of Canada's Jasper project was launched in 2016. After several stages of verification, it will cooperate with the Singapore Monetary Authority to develop the Jasper-Ubin project in 2019, realizing the successful application of CBDC in cross-border, cross-currency and cross-platform payment. The Inthanon Mountain-Lion Rock project jointly conducted by Thailand and Hong Kong establishes a channel between the wholesale CBDC systems of both parties, allowing local networks to participate in the bank's access to the channel network, and directly handle cross-border payments and foreign exchange transactions with each other by means of DR. The Bank of France's experiment is mainly a breakthrough in the payment scene, adding the euro CBDC and other countries' CBDC, euro CBDC and digital assets for large payment settlement. In view of the fact that the euro is the single currency of the 19 European Union countries, the system used by the French central bank experiment is a pan-European real-time full settlement system shared by multiple EU countries. From this perspective, the French central bank's experiment will be effective Research and development is of great significance.

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