BIS, Swiss National Bank and SIX Complete Pilot for Wholesale Digital Currency Project

BIS, Swiss National Bank and SIX Complete Pilot for Wholesale Digital Currency Project

by December 4, 2020

The Bank for International Settlements’ Innovation Hub (BISIH), the Swiss National Bank (SNB) and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (POC) for its wholesale central bank digital currency (CBDC).

Dubbed as Project Helvetia, the initiative shows the feasibility of two POCs, which uses near-live systems to settle digital assets on a distributed ledger with central bank money.

A POC linking the existing payment system to a distributed ledger and another issuing a wholesale central bank digital currency (CBDC) were compared. The collaboration sets the stage for further joint experimentation to assess the impact of digital innovation on the future of the financial system.

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Project Helvetia explored the technological and legal feasibility of transferring digital assets by issuing a wholesale CBDC onto a distributed digital asset platform and linking the digital asset platform to the existing wholesale payment system.

The initiative demonstrated the feasibility and legal robustness of both alternatives in a near live setup. However, comparing them reveals benefits and challenges. A wholesale CBDC has potential advantages when settling digital assets.

Yet it would raise major policy and governance hurdles. Linking existing systems to new DLT platforms would avoid many of these problems, but would forgo the potential benefits of full integration.

Project Helvetia explored a wholesale CBDC, restricted to banks and other financial institutions. A retail or general purpose CBDC would address different use cases and have very different policy implications.

The POCs are experiments conducted at the BISIH and should not be interpreted as an indication that the SNB is to issue wholesale CBDCs onto SIX Digital Exchange’s (SDX) platform or to allow settlement of SDX transactions in the Swiss Interbank Clearing system.

Andréa M. Maechler Swiss national Bank

Andréa M. Maechler

“Irrespective of which technologies the financial markets adopt next, the safety and reliability of Swiss financial infrastructure must be preserved. If DLT can deliver significant improvements in securities trading and settlement, then the SNB will be prepared,”

said Andréa M. Maechler, Member of the Governing Board of the SNB.

Benoît Cœuré BIS Innovation Hub

Benoît Cœuré

“If wholesale CBDCs are to fulfil their potential as a new means of settlement, their design and implications deserve close study and consideration. This is only possible via continued deliberations and experimentations among central banks and with other stakeholders, such as market supervisors and the private sector. Given the speed of digital transformation, central banks – and others – need to learn fast to make informed policy decisions,”

said Benoît Cœuré, Head of the BISIH.

Further work is needed where the next steps are to gain a better understanding of the practical complexities and policy implications of wholesale CBDC. Different design choices that allow for trade-offs between risks and benefits need to be explored.

Featured image credit: Unsplash