On December 8, 2021 the Bank for International Settlements (“BIS”) released a report on “Project Jura”, a test run using distributed ledger technology (“DLT”) to move wholesale central bank digital currency from bank to bank across country borders. Banque de France and the Swiss National Bank joined BIS’s innovation hub to explore how DLT, which doesn’t rely on a central authority, might work when transferring sovereign currency, which is issued by a central authority. Project Jura complied with all legal and regulatory requirements for payment-for-payment or payment-for-delivery settlement in France and Switzerland. To do that, the central bank digital currency used wasn’t actually a direct central bank liability until it was translated via real-time gross settlement for the transactions. Project Jura showed how the opacity and risk of cross-border settlements – such as for FX trades, or even correspondent banking relationships – could be reduced via a third-party platform. In general terms, during Project Jura Credit Suisse and UBS from Switzerland and Natixis from France were each granted intraday access to wholesale central bank digital currency when they transferred real-time funds to Banque de France and the Swiss National Bank. Each of Banque de France and the Swiss National Bank used DLT that permitted each to have a subnetwork on which transactions were observed. Each of Banque de France and Swiss National Bank could also set “notary node” permissions for its subnetwork. The notary node signs and time stamps each digital asset. A third subnetwork permitted banks to exchange assets via DLT with notary nodes for each bank. As an example of how the dual notary node worked in Project Jura, please consider the following transaction. If UBS transferred real-time funds to the Swiss National Bank, the Swiss National Bank issued a digital asset representing central bank currency and signed and time stamped it using its notary node before transmitting it on a subnetwork to UBS. Using another subnetwork, UBS could then transfer that digital asset to Natixis if Natixis’s notary node simultaneously dated and time-stamped digital commercial paper for delivery to UBS. UBS’s notary node and Natixis’s notary node would each need to validate the payment and delivery for those digital movements to occur. Natixis could then use Banque de France’s subnetwork to exchange the digital asset representing Swiss francs into digital assets representing Euros.
Although Project Jura involved Natixis’s issuance of commercial paper as a digital asset, theoretically this dual notary node and oversight by central banks could occur irrespective of what digital asset was being transferred. BIS notes in its report that Project Jura was limited to intraday movements with a real-time fund transfer by the close of each day. To permit holding a central bank currency within a digital space overnight would require changes to how central banks consider their reserves. Even permitting intraday transfers like those in the Project Jura experiment could add to central bank currency volatility and without other systemic changes wouldn’t remove correspondent banks’ importance.
Relatedly, HSBC and Wells Fargo have announced that in trades between themselves they will no longer be using Continuous Linked Settlement for US dollars, Canadian dollars, sterling, or euros. Rather, HSBC and Wells Fargo will be using a blockchain platform run by HSBC called “FX Everywhere”. While this may ultimately reduce settlement costs across borders and trades, for now it may simply be substituting membership in one platform (CLS) for another (FX Everywhere) where a potential competitor controls access to the platform.
For more information about BIS’s Project Jura, please see https://www.bis.org/publ/othp44.htm .