Swiss National Bank and Commercial Banks Collaborate on Tokenized Central Bank Money Project
The Swiss National Bank (SNB) has announced a new partnership with six commercial banks and the SIX Digital Exchange (SDX) to launch a pilot project focused on tokenized central bank money. This project, called Helvetia Phase III, will settle digital securities transactions using a wholesale central bank digital currency (wCBDC) in Swiss franc. The pilot will run from December 2023 to June 2024.
The participating commercial banks include Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS, and Zürcher Kantonalbank. The pilot will make use of the SDX platform’s blockchain capabilities and the infrastructure of Swiss Interbank Clearing SIC operated by SIX and SIX SIS, the national Central Securities Depository (CSD) of the Swiss financial market and an International Central Securities Depository (ICSD).
The goal of the project is to test the settlement of primary and secondary market transactions using a wCBDC in a live production environment. Participants will have the ability to issue digital Swiss Franc bonds that will be settled against wCBDC on a delivery-versus-payment basis. The pilot will also extend to the settlement of repo transactions, collateralized by digital bonds eligible for SNB repo transactions and settled on SDX in wCBDC.
The SNB hopes that this pilot will showcase the transparency and efficiency provided by blockchain technology in a regulated financial system, encouraging wider adoption. David Newns, head of SDX, stated that this initiative is poised to open a new era of digital finance and shape the trajectory of the global financial industry.
A Digital Dollar Still Years Away
While countries around the world are exploring central bank digital currencies (CBDCs), it may still take several years before a digital dollar is released in the United States. According to analysts at Wells Fargo, President Joe Biden authorized the Federal Reserve (Fed) to begin assessing the risks and opportunities of a U.S. CBDC, but the design would still need to be authorized by law.
Wells Fargo analysts believe it will take around three to five years for a U.S. CBDC to be designed, approved, and utilized. The recent launch of FedNow, a fast payment program, could provide some clues to the timeline. However, no formal design or release date has been announced yet. They also clarified that a U.S. CBDC would not replace the U.S. dollar but rather be another form of it.
The benefits of a digital dollar include faster, cheaper, and more secure global payments. It could eliminate the need to wait for checks to clear and reduce exchange fees on global travel. However, concerns regarding privacy and surveillance have been raised. CBDCs are programmable and have the potential to be tracked and monitored by authorities, raising concerns about individual privacy.
In conclusion, no strong case has been made that Americans ‘need’ a CBDC. While central authorities may benefit from traceable money, the potential loss of individual privacy should be carefully considered.