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The Austrian central bank, the Oesterreichische Nationalbank (OeNB), is starting work on the second phase of its Wholesale Central Bank Digital Currency (CBDC) Project Delphi. The first phase focused on simulating delivery versus payment for an Austrian government bond issued on a blockchain and processed by commercial banks on the same platform via CBDC. In the second phase, extended functions, business models as well as non-fungible tokens and DeFi are examined.
Johannes Duong from the OeNB emphasized that the project is a purely national simulation for research, with no plans to introduce a wholesale CBDC and independent of the European Central Bank’s (ECB )’s digital euro initiative for private customers. He spoke at a video conference for the Digital Euro Association, a German private-sector think tank.
The participants in the first phase of the Delphi project included the Austrian State Treasury (OeBFA), the national central securities depository OeKB CSD, Raiffeisen Bank and Erste Group Bank. The project started in October 2020 and ran until June of this year. Work is now beginning on the second phase, which is planned for 2022.
Duong described the typical motivations behind a wholesale CBD. A key goal is to reduce the two-day settlement cycle to T0. Another goal is to make processes more efficient, to reduce the number of intermediaries and the fragmentation of the systems. This in turn reduces risks. Eliminating the need to coordinate separate systems also results in significant cost savings.
Does a Wholesale CBDC Achieve Efficiency?
One goal of the project, however, is to see whether these efficiency gains can be fully realized and what other risks exist. The question arises, for example, whether DLTs are sufficiently scalable. While it can remove some intermediaries through DLT, there are new ones in the form of network validators. Although blockchain aims to address silos, it creates a different set of silos with no blockchain interoperability. And new operational risks for DLT production systems can arise.
Another question is whether a CBDC is needed or whether blockchain securities systems could use Europe’s TIPS or Target-2 securities settlement system, as the German Bundesbank has shown with its trigger payment experiment. However, Duong pointed out the need for 24/7 payments and that a distributed infrastructure would be ideal.
In the technology workstream, the central bank developed a prototype for the CBDC and the digital asset Treasury Bond. In the second phase, a netting solution is examined both as a smart contract and as one in which only the final net payment is logged in the DLT.
There are also a number of works that focus on legal matters such as property law, finality of settlements, and securities laws. There is a new business workstream for the CSD and the banks to explore potential business models in the second phase. And to research non-fungible tokens and decentralized funding (DeFi).
Someone in the audience asked how long it would take to implement a scalable production system. Duong replied that it was less about the technology than the time it would take to be adopted by the market.
Meanwhile, the Banque de France has also conducted at least eight sets of CBDC wholesale experiments, and more are ongoing.
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