The global financial and payments ecosystem is gradually transforming with the advent of central bank digital currencies (CBDCs), which financial institutions worldwide continue to look into in the hopes of finding new use cases. The European Investment Bank (EIB) is the latest institution to be reported working on advancing its CBDC ambitions with the issuance of its sixth digital bond.
The EIB’s latest move is a €100 million ($104.8 million) issuance relying on the Banque de France’s wholesale CBDC offering for settlement. The novel settlement strategy employed by the EIB has triggered a wave of optimism among financial ecosystem players, given its atomic settlement functionality via delivery rather than payment.
The EIB turned to Goldman Sachs’ (NASDAQ: GS) GS DAP platform for bond tokenization, with the international financial giant filling the role of lead manager. German-based financial institutions DZ Bank and Landesbank Baden-Württemberg (LBBW) will join Goldman Sachs as joint lead managers.
GS DAP is a Goldman Sachs distributed ledger technology (DLT) based offering designed as an industry solution for tokenizing, issuing, and trading financial assets. This is not the first time the EIB will use GS DAP for tokenization, with the offering appearing in Hong Kong’s green bond.
“Our approach with this latest was to provide investors with more direct access and to establish a structure well-positioned to support investors’ future activities for digital bonds, such as financings or collateral mobility use cases,” said Goldman Sachs Global Head of Digital Assets Mathew McDermott.
BNY Mellon (NASDAQ: BK) will appear as custodian and investor in the transaction, with the EIB focusing on collateral mobility with the wholesale CBDCs.
Banque de France does not refer to its offering as a wholesale CDBC, opting to call it “exploratory cash tokens,” highlighting its experimental nature and token-based architecture. The French banking regulator’s DL3S distributed ledger is the only option available to the EIB from a pool of three solutions that offer cash on-chain.
The French central bank has intended to explore tokenization use cases for CBDCs to improve their utility in the face of rising digital asset adoption in the financial ecosystem.
A wave of issuance
The EIB’s latest digital bond follows shortly after the issuance of another €100 million bond, which is based on the HSBC Orion platform. Cumulatively, the EIB has had six digital bonds since its first issuance in 2021, with each successive bond exploring a different feature.
The earliest issuance turned to the Ethereum public ledger, while the succeeding ones used permissioned digital ledgers and experimented with green bonds.
“As the EIB, we are proud to lead this effort, collaborating closely with the Eurosystem and demonstrating the potential of blockchain to enhance transparency, security, and efficiency,” said Cyril Rousseau, EIB’s DG of Finance.
Iran set for commercial CBDC rollout
On the other side of the globe, the Iranian banking regulator has announced plans to commercially release its CBDC for retail use after nearly seven years of experiments.
Central Bank of Iran (CBI) Governor Mohammad Reza Farzin noted in a keynote speech at a banking conference that the final pieces of the CBDC puzzle are coming into place. Although the retail payment landscape in Iran appears well-developed, Farzin noted that a CBDC launch would improve the consumer experience.
Farzin said the development of the digital rial is a step in the right direction, noting that central banks worldwide are amplifying investment in the local CBDC systems.
“Developing innovative banking systems is a central bank’s responsibility worldwide, and we are determined to fulfill this duty in Iran,” said Farzin in his keynote address.
Iran’s digital rial has been in the works since the summer of 2018, starting with a public consultation and a proof of concept (POC) before undergoing a wave of pilots. The central bank has previously reiterated its commitment to blockchain technology, roping in Hyperledger Fabric as the underlying architecture.
In June, the central bank rolled out a pilot to test the digital rial’s real-world application in the city of Kish. The CBDC study reveals key points in the incoming digital rial, with experts noting a focus on domestic applications while eliminating the reliance on intermediaries.
While laser-focused on domestic use cases, there are whispers that the incoming digital rial will contain a raft of features to improve tourists’ payment capabilities. The Iranian CBDC is expected to offer offline payment functionality while providing contactless payments and programmability features.
Apart from the topic of CBDC, Farzin unfurled ambitious plans to explore alternatives to circumnavigate Western sanctions. Just recently, Iran completed integrating Russia’s domestic payment system, MIR, with its ACU system, signaling a keen commitment to extended partnerships.
“We’ve replaced SWIFT with this platform and strengthened our ties with BRICS, which is shaping global trade with a strategic plan through 2025,” added Farzin.
A trail of partnerships
Iran has been blighted by economic sanctions over the last decade, fueling a push toward experimenting with CBDCs and stablecoins to circumnavigate the embargoes.
The Middle Eastern nation teamed up with Russia in early 2023 to explore the viability of a gold-backed stablecoin for international trade. In another experiment, the CBI approved cross-border trade studies using digital assets under the strict supervision of financial authorities.
Despite plans to go deep with digital assets, service providers are staring at the grim possibility of facing stern sanctions from United States authorities for facilitating digital currency trade with Iran.
Watch: Finding ways to use CBDC outside of digital currencies
