The European Investment Bank (EIB) has priced its six digital bond just one week after its fifth and, again, feeding into Eurosystem explorations of innovative technologies for wholesale central bank money settlement.

The EIB, which is the lending arm of the European Union (EU), issued a euro-denominated digital bond using a public blockchain in 2021 and the first euro-denominated ‘digitally native’ bond using private blockchain technology in November 2022. A couple of months later it launched a digital bond denominated in pound sterling using a combination of private and public blockchains. It followed that up with a ‘climate awareness bond’ issuance using blockchain last year.

Its fifth issuance, priced on 15 November, broke new ground as it is fed into the Eurosystem’s wholesale central bank digital currency (CBDC) programme. The Eurosystem comprises the European Central Bank (ECB) and the central banks of the 20 EU member states that use the euro.

The hot-on-the-heels sixth issuance, which was priced on 22 November, marked the second EIB issuance in this context and ‘completes EIB’s contribution’ to the wholesale CBDC trials, the Luxembourg-headquartered institution has announced.

The fifth digital bond issuance had a total value of €100 million (about £83m/$105) three-year fixed-rate note. The sixth issuance carries the same value and a five-year tenor (to mature on 22 November 2029).

RELATED ARTICLE EIB’s fifth digital bond feeds into Eurosystem wholesale CBDC explorations – a news story (22 November 2024) on the previous issuance

‘Diversifying testing of market issuance platforms’

The EIB announced just over a month ago (23 October) that it was ‘actively participating’ in the Eurosystem explorations.

Settlement for the fifth issuance took place in central bank money on 19 November via Banque de France (Bdf)’s DL3S platform (the ‘central bank blockchain’) through what are described in the announcement as ‘exploratory cash tokens’. The ‘market blockchain’ was the HSBC Orion bond tokenisation platform, interoperating with DL3S in real time.

The sixth digital bond also involved BdF’s DL3S. However, this time it was interoperating with a Goldman Sachs Bank Europe digital bond issuance and tokenisation platform, ‘GS DAP’ (the ‘market blockchain’). As with the fifth issuance, Banque central du Luxembourg acted as local central bank for the EIB.

The fifth issuance involved HSBC Continental Europe as lead book runner; and the same France-headquartered bank, as well as BNP Paribas (France) and NatWest Markets (UK), as joint lead managers. This time Goldman Sachs Bank Europe and two Germany-headquartered banks – DZ Bank and LBBW – have been joint lead managers.

“This second digital bond issuance under the Eurosystem’s exploratory work represents another milestone in our efforts to contribute to shaping the digital future of capital markets,” said EIB director-general of finance Cyril Rousseau, who described the switch to GS DAP as “diversifying the testing of market issuance platforms, counterparties and custodial solutions, opening up new opportunities for institutional investors to access and test innovative financial solutions”.

He described the issuance as illustrative of an “ongoing commitment to advancing financial technology and strengthening Europe’s market infrastructure.”

RELATED ARTICLE Swiss city of Lugano issues third blockchain bond – a news article (7 November 2024) on Lugano municipality (in Switzerland) issuing its third bond using distributed-ledger technology (DLT) just under two years after a pioneering first such issuance

Testing different solutions

The overall aims of the Eurosystem’s explorations are to ‘consolidate and further develop’ ongoing efforts by Eurosystem central banks in this area; and gain insight into how different solutions could facilitate interaction between TARGET services (a number of services developed and operated by the Eurosystem, including T2 for settling payments and T2S for settling securities) and distributed-ledger technology (DLT) platforms.

The Eurosystem has a market contact group, the ‘New Technologies for Wholesale Settlement Contact Group’ (NTW-CG), which provides expert input and aims to keep the Eurosystem up to date with advances in the use of DLT and other new technologies in wholesale financial markets.

For the past six months (since May 2024), NTW-CG participants have been able to pursue trials with actual settlement in central bank money and/or experiments with mock settlement in a test environment. The exploratory work has been focusing on three interoperability-based solutions: DL3S (the name stands for ‘Distributed Ledger for Securities Settlement System’), ‘Trigger Solution’ by Deutsche Bundesbank and ‘TIPS Hash Link’ by Banca d’Italia.

In the EIB’s announcement last month on its involvement in the Eurosystem’s explorations, the EIB stated that it was ‘preparing to engage in two projects offering the prospect of significant innovation, each using one of the Eurosystem’s new technologies for settlement of wholesale financial transactions recorded on DLT platforms in central bank money.’

‘Since 2021, the EIB has gained significant experience with the digitalisation of capital markets and has issued four digital bonds totalling nearly €400 million [now, after digital issuances five and six, nearly €600 million] across multiple jurisdictions and industry platforms,’ the announcement stated. ‘Now, the technological progress of industry platforms and the availability of various settlement systems using central bank money provides the EIB with favourable conditions for progress in its digital journey.’