The Digital Euro is getting closer to reaching its goals

The new tests carried out on the occasion of the creation of the digital euro have recently been completed by the Bank of France (BdF) and the Monetary Authority of Singapore (MAS), with the particularity that in the tests used by said authorities, decentralized finance tools (DeFi) were implemented, such as the Automated Market Makers (AMM), indicated Criptonoticias.

From this article it is incredible to observe how the authorities, and not only the private ones, have been actively working on the implementation of the technology and its benefits for aspects of great relevance, such as the creation of a digital currency issued by central banks and that is heading towards the DeFi.

The referred AMM are automatic systems that allow to compare the quotation between two assets; and that they would contribute to achieving one of the main purposes of the markets, specifically, to provide fluidity to exchanges through the almost constant supply to the pools of liquidity. From this automated mechanism, it would allow operations to be executed uninterruptedly and with less friction, contrary to what happens with the traditional financial system. This is, in our opinion, extremely interesting, since we find in technology valuable tools to create efficiencies in the markets.

According to what was officially communicated by the MAS, the tests consisted of simulating international transactions using multiple central bank digital currencies (CBDC) on a private Quorum blockchain that is shared among participating countries. In the tests, automated methods and smart contracts were used for the first time for market operations and liquidity management, thus facilitating the development of financial operations, executed on the basis of services created on blockchain, where intermediaries are dispensed with. , many times when participating in the exchange of assets and transactions, can generate higher costs and increase execution times.

Our position is shared by the MAS, who has indicated that this shared network (Quorum) with support for several CBDC currencies would facilitate transnational payments in real time and without interruption; those that today depend on arrangements between banks that are not sufficiently transparent (regarding the rates applicable to foreign exchange houses); and which are delayed by the delays associated with settlements between countries due to the time difference.

According to the article, the tests carried out by the Bank of France and Singapore only contribute to the institutionalization of DeFi; as it shows that there is, at least, interest in incorporating technology into their projects and exploring the benefits associated with it. In that order of ideas, the MAS publication explains that four main results were achieved from this experiment:

  • Show thatthe different infrastructures in the cloud allow interoperability between them (digital currencies).
  • Check that the common network with several CBDCs allows better visibility of cross-border payments and, above all, rescuing that in this case the central banks of each country do not lose power over their own CBDCs.
  • The incorporation of an automated system of pools liquidity and marketing services has been successful with the currency pairs included. 
  • The experiment shows the benefit of reducing the number of “intermediaries” participating in international transactions. Using this common network and technological tools, the costs associated with contractual arrangements and KYC policies could be reduced.Know your customer').

Asia is also no stranger to the use of common blockchain platforms, so much so that a South Korean tech company recently released the open source code of one of its blockchain platforms to help banks in Asia develop CBDCs.

In line with all the above, we also demonstrate and rescue as something very positive the collaboration between the public and private sectors to generate improvements in the markets, based, for now, on tools that seek to demonstrate the added value of decentralized finance and its impact on the economy.

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Erika Rios
Erika is a lawyer from the Peruvian University of Applied Sciences (UPC). He has experience in banking regulatory advice and financial transactions, mainly in financing with local and foreign financial entities. He currently works at Vodanovic Legal, an expert legal firm in financial law issues. He specializes in Banking Regulation and Fintech.

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