The Swiss National Bank and five commercial banks integrated a central bank digital currency (CBDC) into their existing systems and processes. Their Project Helvetia looks to a future with increased tokenized assets based on blockchain technology that coexist with today’s systems.
Integrating digital central bank money for financial institutions into existing core banking systems is complex and a critical requirement for the potential issuance of a blockchain franchise. The second phase of Project Helvetia successfully demonstrates that such integration is operationally possible. Issuing a CBDC on a distributed ledger technology (DLT)-based platform owned and operated by a private sector entity would be possible under Swiss law. The CBDC for financial institutions (wholesale CBDC) is considered the most popular proposal among central banks because it has the potential to make existing financial systems faster, cheaper, and safer.
The second phase of the project
The next phase of Project Helvetia is another joint experiment between the Bank for International Settlements (BIS), the Swiss stock exchange SIX and the Swiss National Bank (SNB). This phase also involved five commercial banks – Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.
Project Helvetia looks to a future with increased tokenized assets and DLT-based financial infrastructures. According to international regulatory standards, operators of systemically important infrastructures should settle payments in central bank money to the extent practicable and possible. While none of the existing DLT-based platforms is systemic yet, this could change in the future. Also, according to the SNB, central banks may need to extend monetary policy implementation to tokenized assets.
Experiment with commercial banks
The experiment was conducted in the fourth quarter of 2021. It examined the settlement of transactions on the test systems of the SIX Digital Exchange (SDX), the Swiss real-time gross settlement system SIX Interbank Clearing (SIC) and the core banking systems. “Project Jura” was already investigating cross-border payment processing in collaboration with the Bank of France.
“With Phase II, the Swiss National Bank has deepened its understanding of how the security of central bank money could be extended to tokenized asset markets. Together with the BIS Innovation Hub Swiss Centre, SIX Group and five commercial banks, the digital central bank currency was successfully tested in a realistic environment that was both operationally and legally feasible.” – Andréa M. Maechler, Member of the Governing Board of the Swiss National Bank
Central banks can use this tool to fulfil their mandate to ensure monetary and financial stability and also keep pace with technological change, according to the SNB. Project Helvetia is an excellent example of how this can be achieved, it said. The SNB was able to gain deeper insights into how the security of central bank money can be extended to markets for tokenized assets.
Wide range of transactions
The experiment involved a wide range of transactions in Swiss francs: Interbank, monetary policy, and cross-border transactions. However, Project Helvetia was purely exploratory in nature and should not be interpreted as an indication of the planned issuance of a CBDC by the SNB. Phase II, he said, merely continues the exploration of settling tokenized assets in a wholesale CBDC that began in 2020 with Phase I of Project Helvetia.
A value-based wholesale CBDC would replace or supplement reserves at the central bank with a digital token with restricted access. A token would be a bearer asset, meaning that the sender would transfer value to the receiver during the transaction without an intermediary. This would be something fundamentally different from the current system, in which the central bank debits and credits account without transferring actual value.