ABN AMRO has achieved a significant milestone by completing its second use case as part of the Eurosystem Central Bank Digital Currency (CBDC) trials. On 22 and 23 October, ABN AMRO successfully executed four repo pilot trades with central bank money settlement with Distributed Ledger Technology (DLT) – a digital version of the euro that is available exclusively during the trials – and utilising a tokenised commercial paper (CP) as collateral.

ABN AMRO is participating in these ECB-organised trails to gain expertise in CBDC usage before its wider adoption, enhance digital capabilities across the securities lifecycle, and explore innovative balance sheet management applications like intraday liquidity management.

ABN AMRO frontrunner in digital asset space

The ECB-organised trials, running from May 2024 to November 2024, offer institutions the chance to test euro central bank money settlement with Distributed Ledger Technology (DLT). The participation in the Eurosystem trials positions ABN AMRO at the forefront of the development of the European financial markets towards digital assets and cash settlement on blockchains.

“As the first Dutch bank to register a digital green bond on a public blockchain last year with client Vesteda, the Eurosystem trials further strengthen ABN AMRO’s frontrunner position in the digital assets space and support our commercial digital assets offering to clients. Together with other European participants ABN AMRO is shaping the digital assets landscape and paves the way for the digital euro. The benefits are not limited to ABN AMRO’s commercial offering,” as Sander Wever, Head of Money Markets and Securities Financing at ABN AMRO explains. “The CBDC repo trial allows ABN AMRO to explore novel collateral types (tokenised CP issued by ABN AMRO), on-chain settlement and intraday liquidity management solutions for the future.”

Understanding the basics

• What is a repo?

  Repo stands for repurchase agreement and is comparable to a short-term loan using securities as collateral: one party (e.g., Bank A) sells securities to another party (e.g., Bank B) and agrees to buy them back later at a slightly higher price (we call this the repo rate).

• What is a digital (or tokenised) asset?

  Digital assets are created and stored digitally. In Corporate Banking, this could include tokenised securities, where ownership rights are recorded digitally on a blockchain.

• What is a blockchain?

  A blockchain is a digital database of transactions shared across a network of participants. It can be public or private. Blockchain technology is a type of Distributed Ledger Technology (DLT).

• What is Central Bank Digital Currency (CBDC)?

  CBDC is central bank money stored on a blockchain. For ABN AMRO’s pilot use cases, the Banque de France issued the digital currency in collaboration with De Nederlandsche Bank (DNB).

  Successful execution of the use cases

  Earlier in October, ABN AMRO issued a tokenised commercial paper (CP) on a private blockchain operated by Clearstream, and central bank money settlement with DLT. Trial partners ABN AMRO Clearing and Rabobank invested in this short-term debt security. While ABN AMRO has previously facilitated digital bond issuances for Vesteda and APOC, this CP issuance marked its first own tokenised issuance and the first with the cash leg settled directly on a blockchain.

  ABN AMRO’s second use case involved four reverse repo transactions between ABN AMRO Bank, ABN AMRO Clearing, and Rabobank, cleared by Eurex Clearing. ABN AMRO Bank’s Treasury regularly uses repos for balance sheet management. However, these four transactions were unique due to:

  1. Collateral:

     The collateral was the tokenised CP issued by ABN AMRO in early October, not a regular security like a government bond.

  2. Settlement:

     The repo trades were settled atomically using CBDC, instead of regular cash (fiat money).

  3. Maturity:

     The exploratory setting and instantaneous settlement enabled testing of two intraday repos for the first time, with ABN AMRO buying and selling a security on the same day. The other two repos were conducted on an overnight basis.

  Looking ahead

  “The Eurosystem trials allowed ABN AMRO to gain additional knowledge and expertise in the area of tokenisation and DLT settlement. On the back of this valuable experience, ABN AMRO continues to advance other tokenised securities initiatives, positioning itself as a future-proof bank. With the potential for CBDC to become widely available for business-as-usual soon, ABN AMRO stands ready for the transition,” says Sander Wever.

  Source: ABN Amro