Amélie Frémy, innovation chief operating officer for global markets at BNP Paribas, spoke to Burhan Khadbai, head of content for OMFIF’s Sovereign Debt Institute, about the bank’s role in helping Slovenia structure the first sovereign digital bond issuance in Europe.
Burhan Khadbai: Could you summarise the key aspects of the placement and how it was structured?
Amélie Frémy: This transaction was issued off the European Central Bank’s wholesale central bank money settlement experimentation programme. From our side, we did a few transactions for the bank last year as well as one in June. The Slovenia digital bond and the transactions for BNP Paribas were connected to the Banque de France platform, which provided the experimental cash tokens.
For us, this was an opportunity to do a transaction with on-chain settlement, as well as a great opportunity to access the digital euro. The ECB’s CeCM started in May and will run until November where market participants can access the digital euro through three different settlement solutions from Banque de France, Bundesbank and Banca d’Italia. We will be testing all three solutions as part of the programme, and BNP Paribas Global Markets is planning another transaction with the Bundesbank solution.
BK: Why was Slovenia keen to do this transaction? Could digital bonds bring about significant cost-savings for issuers?
AF: Slovenia was very motivated to demonstrate how innovative it is by opening up this space in Europe from a sovereign standpoint. We were contacted in late 2023 to work with Slovenia to proceed with a digital bond as part of the ECB’s CeBM with access to a cash central bank digital currency and settlement with a traditional currency.
Digital assets are at an early stage so there is no cost reduction at this time, but we can see how in the future it could provide real benefits from an operational perspective. These experiments enable sovereigns to test the set-up and market.
BK: How did investors engage in this transaction?
AF: We had a few types of investors who relied on custodians; others will prefer to directly settle through Neobonds, BNP Paribas Global Markets’ private tokenisation platform, and the Banque de France platform.
BK: Do you have a preference between private and public blockchain?
AF: At this stage, private technology allows financial institutions to meet current regulatory requirements, but there are also opportunities with public blockchain. We want to be in a position to get familiar with both technologies. Neobonds is a private blockchain, canton-based and as secure as any other service or platform used within the bank. It is therefore fully permissioned.
BK: What were the lessons learned from this experiment? Do you expect other sovereigns and issuers to follow Slovenia?
AF: The real positive from these transactions is the speed of settlement and the capacity to settle immediately. We have also identified that it is probably achievable to have fewer intermediaries with the use of smart contracts and being able to automate coupon payments. This will bring significant improvements to the current bond issuance process.
We hope others will follow. We have received a lot of questions since the beginning of the ECB’s CeBM about accessing the digital euro and the benefits for not just sovereign, supranational and agency borrowers but other issuers, as well as investors. They all want to be educated in this.
We have been talking about digital assets for a while but the pace of development has been quite slow until now. With the ECB’s CeBM, we see an acceleration by all market players who want to learn more about these products and more questions being asked. It is quite encouraging to see this traction.
We are open to the possibility of making use of the European Union blockchain pilot regime, but at present there are no registered or licenced trading or settlement systems. Until those licences are granted, we can’t experiment in that area, but it’s something we’re interested in exploring.
This article will appear in OMFIF’s forthcoming Digital assets 2024 report. Register to attend the launch event here. Read last year’s report here.
