New ESM discussion paper
Wholesale central bank digital currency – the safe way to debt capital market efficiency
By Josselin Hebert , Edmund Moshammer and Herbert Barth
In this latest ESM discussion paper, the authors discuss digital innovation in the context of debt capital markets:
- Digital enhancements increase efficiency and reduce risks. Smart contracts on DLT, could increase operational efficiency and reduce capital market risks.
- Cost savings stem from a wholesale digital euro through automation, instant settlement, limited counterparty risk and expansion of central bank money settlements.
- Hurdles remain to using DLT in debt capital markets. The public infrastructure building is time-consuming; private market solutions lack the availability of stable central bank money; and several key design choices remain undefined.
Based on these observations, the authors propose a technical setup for end-to-end on-chain sovereign debt issuance, including not only post-trade but also pre-trade issuance steps. A private permissioned blockchain, and an on-chain wholesale digital euro are proposed as a balanced solution allowing to grasp benefits while limiting risks. Authors develop the example of auction type debt issuance in such a setup.