Episode 14: Digital Assets and the Digital Euro

Digitization of financial assets promises tremendous benefits to the capital markets, such as executing fast, efficient, and secure transactions via distributed ledger technologies (DLTs). First financial institutions across the globe look for opportunities to integrate blockchain technology into their security offerings, such as blockchain-based bonds. The World Bank pioneered by issuing a new blockchain-based debt instrument and launched its bond-i already back in August 2018. Today, digital assets are already allowed by the regulator, e.g., in Germany, and will thrive over the next years. The advantages of digital assets become particularly clear when not only the digital asset itself, but also the payment/settlement of the digital asset is observed. When digital assets are based on DLTs, not only buying and selling the bond via a DLT is possible, but also the payment of the bond - both on the same platform. This allows for instantaneous settlement of assets. One promising way for digital assets is to settle in central bank money, via a wholesale central bank digital currency (CBDC). While the first central bank pioneered wholesale CBDCs, the Austrian Central Bank has recently conducted a research project for settling a digital asset with central bank money. In their DELPHI (Delivery vs. Payment Hybrid Initiative) project, appropriateness of blockchain technology for issuing and settling digital bonds in real time using a wholesale CBDC was explored. The Austrian Central Bank issued a wholesale CBDC that was used to pay for the digital bond. Potential deliveries of this blockchain-based project are to assess the compatibility of the current legal framework and its various amendment needs and to evaluate the applicability of this project learnings to the market needs.