Fintech
Swiss central bank undertakes world’s first tokenized monetary policy operation
SNB headquarters in Zurich: Earlier this month the Central Bank issued digital SNB invoices on the SIX Digital Exchange (SDX), it announced – in addition the Helvetia project will be continued “for at least another two years” and its “expanded” scope; inset: Global Government Fintech article (7 November 2023) on the third phase of the Helvetia project | Credit: SNB
The Swiss National Bank (SNB) announced that it has become the first central bank in the world to “carry out a monetary policy operation in a live production environment” using distributed ledger technology (DLT).
The announcement was made during a press conference in Zurich (June 20) which provided updates on topics such as inflation and the Swiss economic outlook before focusing on fintech-related innovation, in particular new ambitions for the pilot project wholesale on the central bank digital currency (CBDC) “Project Helvetia” initiative.
THE SNB said it successfully issued SNB digital invoices on the SIX Digital Exchange (SDX), the sister “tokenized assets” platform of the SIX Swiss Exchange, Switzerland’s main stock exchange, “in early June.” The token-based invoices, which had an issuance volume of 64 million francs (around £56.6 million/$71.6 million), had a duration of one week.
The Helvetia project, which is already in its third phase, will be continued for “at least another two years” and its scope “expanded”, the Central Bank also announced. The third phase, which began in December 2023, was due to end at the end of this month (June 2024).
The pilot program allowed the National Bank to “play a leading role globally in the implementation of wholesale CBDCs in a live production environment,” the central bank said, adding that it “hopes that additional financial institutions participate over time and that wholesale CBDC can be made available for a broader range of financial transactions.”
WHOLESALE CBDC: EXPLAINED A wholesale CBDC (“wCBDC”) is a CBDC for interbank use; it is the lower profile sibling of a retail CBDC, which is for people’s everyday use (also sometimes called “general purpose” CBDC)
The next steps of the Helvetia Project
The first Helvetia project The report, published in collaboration with the Bank for International Settlements (BIS) Innovation Hub, was published in December 2020. second phase added commercial banks to the experiment, integrated wCBDC into the core banking systems of the central bank and commercial banks, and executed transactions “from start to finish.”
The third phase (“Project Helvetia III”) saw the SNB move its wholesale CBDC business from test environments to production, with banks transacting on SDX as intermediaries for issuers and investors. The BIS was not involved at this stage.
The cantons of Basel-Stadt and Zurich, the cities of Lugano and St. Gallen, as well as UBS and the World Bank they each issued a bond via SDX as part of phase three. The participating banks were Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS and Zürcher Kantonalbank. The total value of settled transactions amounts to approximately 750 million francs (approximately £663 million/$839 million).
Regarding the proposed expansion, the SNB stated that “financial institutions will be informed in due course about the modalities of participation”.
“With the continuation of the Helvetia pilot project, the SNB is supporting innovation in the private sector,” the announcement continues. “The future success of the pilot will largely depend on whether new financial market participants join, whether transaction volume increases and whether further financial market transactions are settled on this platform.”
RELATED ARTICLE The Swiss National Bank puts CBDC into production for bond transactions – our news (7 November 2023) on the third phase of the Helvetia Project
“The foundations for the future of finance”
SIX/SDX published its announcement on the same day as the SNB press conference (June 20), describing the continuation of Helvetia’s pilot project as a “significant milestone, paving the way for broader adoption of the tokenized ecosystem” .
“This represents an important step forward in the digital transformation of the financial sector,” he said SEI CEO Jos Dijsselhof. “The pioneering use of wholesale central bank digital currency goes beyond improving the efficiency and security of financial transactions, it is the foundation for the future of finance. This project underlines our commitment to innovation and consolidates Switzerland’s position at the forefront of the adoption of digital assets in the capital markets.”
“A robust and scalable financial market infrastructure requires wholesale transactions to be settled in central bank money, the safest form of money,” said David Newns, head of SIX Digital Exchange. “To fully exploit the potential of blockchain, both the tokenized investment and the settlement asset must be on the same chain. The Helvetia III project demonstrated that SDX can meet these requirements.”
“The participation of major financial institutions and the issuance of six digital bonds to date, totaling over 750 million francs, settled in wholesale CBDC, highlights the market’s confidence in our digital asset infrastructure,” he said. continued Newns. “SDX continues to advance digital financial markets, with Helvetia’s ongoing pilot enabling more participants to adopt digital assets with on-chain [blockchain] Wholesale CBDC Regulation.
The SNB stated during its press conference that its activity related to wholesale CBDCs does not constitute a commitment to introduce wholesale CBDCs or SNB digital invoices on a permanent basis.
RELATED ARTICLE The World Bank issues wholesale CBDC-settled Swiss digital bonds – a news story (May 17, 2024) about the World Bank pricing the first Swiss franc digital bond from an international issuer – also the first Swiss franc digital bond from an international issuer to be settled using the World Bank’s wholesale digital currency central bank provided by the SNB
Testing of SNB bills
The trial, announced in January and expected to last at least 12 months, is led by the BIS Innovation Hub. The International Monetary Fund (IMF) participates as an observer.
The context of the initiative – so-called “Project Promise” – has been presented by the BIS Innovation Hub as having the potential to support the G20’s ambition to create better, bigger and more effective multilateral development banks by substantially increasing their financing capacity.
“Today, many international financial institutions (including multilateral development banks – MDBs) are partly financed by financial instruments known as bills of exchange, most of which are still paper-based,” explains a BIS Innovation Hub web page about the project.
“While the current system provides operational controls for member countries to make subscription payments and contributions to institutions such as the World Bank, the custody of outstanding promissory notes can be digitized to address operational challenges and improve efficiency,” reads the Web page.