The European Investment Bank (EIB) has priced its fifth digital bond as it continues to bring fresh technological twists to its issuances.

The EIB, which is the lending arm of the 27-member 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.

This fifth issuance is breaking new ground as it is feeding into Eurosystem exploratory work on the use of new technologies for the settlement of wholesale financial transactions recorded on distributed-ledger technology (DLT) platforms in central bank money: its wholesale central bank digital currency (CBDC) programme.

The EIB announced last month (23 October) that it was ‘actively participating’ in the Eurosystem explorations. The Eurosystem comprises the European Central Bank (ECB) and the national central banks of the 20 EU member states whose currency is the euro.

Its new digital bond issuance – a €100 million (about £83m/$105) three-year fixed-rate note (priced on 15 November) – is ‘in line with the EIB’s commitment to provide expert input and keep the Eurosystem up to date with advances in the use of DLT and other new technologies in wholesale financial markets,’ the EIB stated in a press announcement (15 November).

RELATED ARTICLE UK ‘digital gilt’ pilot to run independently from Debt Management Office – a news story (19 November 2024) with details on UK government plans to undertake a pilot issuance of a ‘digital gilt instrument’ using DLT

‘Transparency, security and efficiency’

Settlement 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.

BdF director-general for financial stability and operations, Emmanuelle Assouan, said in the EIB’s announcement that issuance had showcased the advantagesof using a wholesale CBDC to achieve atomic settlement through the central bank’s interoperability solution.

“EIB’s new blockchain-based bond marks a significant step forward in our journey to modernise capital markets and leverage innovative technology in finance,” said EIB director-general of finance Cyril Rousseau in a press announcement (15 November). “We are proud to lead this effort, collaborating closely with the Eurosystem and demonstrating the potential of blockchain to enhance transparency, security and efficiency. This bond underscores our commitment to exploring advanced digital solutions to increase Europe’s productivity and competitiveness and reinforce the Capital Markets Union [CMU].”

CMU is an EU initiative launched in 2014. A ‘Capital Markets Union: Ten Years Later’ report, requested by the European Parliament’s Committee on Economic and Monetary Affairs, published in March this year concluded that CMU had ‘disappointed in its first decade’. In a speech in Brussels in September BdF governor François Villeroy de Galhau described CMU as having “proved insufficiently galvanising from a political standpoint” and called for it to be “rebranded as a ‘Savings and Investments Union’.”

The EIB’s Luxembourg law-governed issuance has involved HSBC Continental Europe as lead book runner; the same France-headquartered bank, as well as BNP Paribas (France) and NatWest Markets (UK), as joint lead managers; and the Banque centrale du Luxembourg as local central bank for the EIB.

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

Hitting the TARGET

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 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 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.’