Indonesia concludes proof of concept for wholesale CBDC

Bank Indonesia has announced the completion of a Proof of Concept (PoC) for its central bank digital currency (CBDC) as it tries to keep pace with the rest of the region.

According to an official announcement, the completion of the PoC signals a commitment from the banking regulator to proceed with a digital rupiah to complement existing payment options. Dubbed the “Immediate State,” the PoC lays the foundation for advanced studies into the feasibility of a CBDC for the Southeast Asian nation.

Bank Indonesia Governor Perry Warjiyo disclosed that the latest milestone confirmed the suitability of a distributed ledger technology (DLT)-based system for CBDC.

“This achievement is a manifestation of Bank Indonesias commitment to the development of the Rupiah Digital in response to the rapid growth of the digital financial economy,” said Warjiyo.

The official report reveals that the central bank explored two DLT platforms to test the emerging technology. The study leaned on R3s Corda and Hyperledger Besu, gauging each DLT platform on their issuance, transfer and redemption capabilities.

Warjiyo noted that the PoC adopted a thorough stance during the process, testing each PoC against over 50 predefined metrics. Both platforms scaled the tests while demonstrating remarkable abilities in scalability, privacy, and resilience against attacks from bad actors.

The PoC went on to explore smart contract use cases, triggering speculation that the digital rupiah will have programmable functionalities while testing interoperability with existing payment standards.

Introducing DLT in the quest for CBDCs is expected to improve the state of liquidity management in the payments space. However, ecosystem players are rubbing their hands in glee at the prospects of integrating cross-border payment solutions and their domestic counterparts.

Experts say the completion of the PoC could fast-track things for Bank Indonesia, with the central bank keen on releasing a consultative paper in the coming weeks as part of the Intermediate State. Previously, the central bank had rolled out a whitepaper introducing the concept of a digital rupiah to players in the financial ecosystem and the general public.

While Indonesian authorities are steamrolling toward CBDCs, skepticism for digital assets are at an all-time high in the country. A streak of black swan events has since triggered a stiff clampdown from regulators to protect investors.

Under the new rules, digital assets will be viewed as securities, placing them under capital market laws. The Ministry of Trade followed up with a resolution requiring two-thirds of directors in digital exchanges to be residents of Indonesia while rolling out a national digital currency exchange for uniformity.

Société Générale and Banque de France wrap up blockchain repo transaction

Société Générale (NASDAQ: SCGLY) and the French central bank have announced the completion of a blockchain-based repo transaction, the first of its kind involving a Eurosystem bank regulator.

In an official press release, the repo transaction involved a collateralized market deal settled using a distributed ledger with Société Générales subsidiary, FORGE, operating as a principal party.

A repo transaction, formerly known as a repurchase transaction, is a borrowing and lending arrangement involving two financial system ecosystem players. One party sells securities to the lender with an agreement to repurchase the assets at a higher price at an agreed date, reducing lending risk while managing liquidity.

Société Générale had previously deposited digital bonds issued in 2020 on the Ethereum ledger with the Banque de France. Intended to serve as collateral, Société Générale received lump funds from the banking regulator in the form of CBDC on its DL3S ledger.

Société Générale describes the completion of the transaction as the first of its kind involving digital securities and a central bank in the Eurosystem. While a trail-blazing event, the banking giant notes that the move could be a masterstroke in addressing lingering liquidity issues plaguing securities operations.

“This transaction demonstrates the technical feasibility of interbank refinancing operations directly on blockchain,” read the statement. “It illustrates the potential of a central bank digital currency to improve the liquidity of digital financial securities.”

Experts say the upsides to the pioneering move are vast, including improved efficiency via the capabilities of real-time settlements and smart contract automation. Furthermore, both parties can lean on blockchains immutability perks to reduce counterparty risks while saving costs associated with traditional repo transactions.

A birds eye view indicates that blockchain-based repo transactions will broaden market participation, opening the floodgates for cross-border arrangements.

Stepping on the gas

Parties to the pioneering transaction reveal that they will increase the size of their bets with blockchain-based repo transactions. Société Générales FORGE has hit its technical milestones, while the central bank is forging ahead in its tokenization quest with CBDCs, independent of the European Central Bank (ECB).

Since 2021, Banque de France has onboarded several high-ranking commercial banks to participate in its CBDC trials, including HSBC (NASDAQ: HSBC), Credit Agricole CIB, and Société Générale. A recent deal with the Hong Kong Monetary Authority (HKMA) accentuates its commitment to pursue tokenization capabilities with a wholesale CBDC.