A Deutsche Bundesbank branch in Dortmund, Germany, 16 September 2020. Shutterstock
While other countries are focusing their efforts of researching Central Bank Digital Currencies (CBDCs), Germany has decided to bridge blockchain and traditional finance with a new project, Deutsche Bundesbank said in a press release on 24 March.
According to the announcement, Germany’s central bank partnered with Deutsche Börse and the German Finance Agency on a project to create a system that allowed those who sell securities on a blockchain to receive their proceeds directly into their bank accounts, without the need of digital currencies. The bank also said this technology can be scaled up to the entire Euro zone in a much shorter time than creating a digital euro. A member of the Bundesbank executive board, Burkhard Balz, said in a statement:
“Following successful testing, the Eurosystem should be able to implement such a solution in a relatively short space of time – at least in far less time than it would take to issue central bank digital currency, for instance.”
The new system uses two software modules — a “trigger chain” from Bundesbank and a transaction coordinator from Deutsche Börse — to connect the securities on the blockchain to the largest payment system in the Euro zone, TARGET2. In order to test the new system, the German Finance Agency issued a 10-year federal bond on a DLT system, which was then traded by six banks, namely Barclays, Citibank, Commerzbank, DZ Bank, Goldman Sachs and Société Générale. Bundesbank said in its press release:
“The participants have demonstrated that it is possible to establish a technological bridge between blockchain technology and conventional payment systems to settle securities in central bank money with no need to create central bank digital currency.”
While the German central bank is trying to create technologies to prevent the need of CBDCs — as stated by Balz in a speech in October 2020 — other countries are nearing the release of their own digital currencies. China, for example, has already developed its own CBDC wallet, and started onboarding private banks in its digital yuan trials, which have already progressed to real world tests.