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Blockchain in the banking sector has seen another boost as a major French bank, Société Générale, has completed a 40 million euro transaction using the nascent technology. The bank is the latest in many central banks across the globe turning to blockchain.
It was reported yesterday that Société Générale, France’s third largest bank by total assets, has successfully completed a transaction using a Central Bank Digital Currency (CBDC). The transaction in question was the issuance of 40 million euros in covered bonds on a public blockchain in the form of security tokens. The Société Générale subscribed and then paid the issuance of these tokens to the issuer using Banque de France-issued digital euros.
This transaction is significant as it shows the potential for the use of blockchain in interbank settlements. According to the bank, this experiment is a step in exploring the use of technology such as blockchain to improve existing financial systems. This comes over a year after Société Générale issued 100 million euros in the form of security tokens back in April 2019.
While this development on the part of the Société Générale is significant, it is only one in the latest of banks around the world exploring blockchain technology. The Central Bank of France, for instance, is testing a digital euro in a bid to explore the potential of the technology. Earlier this year, the chairman of the Federal Reserve, Jerome Powell, stated that every central bank in the world is exploring CBDCs.
These efforts are apparently being accelerated by the ongoing COVID-19 outbreak. According to former CFTC chair Chris Giancarlo, a digital dollar could be the answer to the current economic issues faced in light of the virus. A digital dollar, he says, would preserve the cash form of the US dollar while addressing privacy concerns.
The successful transaction by Société Générale might be a step in the right direction, but the bank has ultimately faced some challenges as a result of COVID-19. According to their first-quarter reports for 2020, the bank was highly impacted towards the end of the quarter due to the virus outbreak. Their cost of risk is also at 65 basis points for the quarter compared to 21 basis points a year ago.
However, the report does state that Group operating costs declined by 3.6% due to COVID-19. They are also expected to decline by another 600 to 700 million euros over the year. This is likely due to businesses switching to working from home across the globe.
The COVID-19 outbreak has forced sectors all over the world to reconsider their business models. This includes more remote working and delivering value to customers without physical contact. Hopefully, a post-lockdown world will be accommodating innovative technologies such as blockchain.
Do you think the COVID-19 outbreak will be a major catalyst for central banks embracing blockchain? Will these developments continue after lockdown measures are lifted? Let us know your thoughts below.