Swiss central bank completes CBDC trial, downplays DLT

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Switzerland’s central bank has announced the successful completion of a central bank digital currency (CBDC) trial. While the trial demonstrated the feasibility of a wholesale CBDC, the bank claimed that distributed ledger technology has not yet proven its ability to handle the European country’s payments system.

The Swiss National Bank (SNB) partnered with the Bank for International Settlements’ Innovation Hub and the country’s principal stock exchange SIX on the trial. Known as Project Helvetia, it explored the technological and legal feasibility of integrating central bank money into a DLT-based financial markets infrastructure.

Project Helvetia consisted of two proofs of concept, BIS revealed. In the first, the SNB issued a wholesale CBDC directly onto the DLT infrastructure of the Swiss Digital Exchange (SDX). SDX is a blockchain-based stock exchange that SIX has been building, with the launch expected before the end of the year.

The first PoC investigated four use cases. They were the issuance of a wholesale CBDC, redemption of the CBDC, delivery and settlement of tokenized assets against wholesale CBDCs and transfer of the CBDC.

In the second proof of concept, the three participants investigated the interoperability between the DLT infrastructure of SDX and the Swiss RTGS system (SIC). One use case was investigated in PoC 2—delivery and settlement of tokenized assets against SIC balances.

On the conclusion from the two PoCs, the BIS stated, “A wholesale CBDC has potential advantages when settling digital assets. Yet it would raise major policy and governance hurdles.”

Linking existing financial systems to new DLT platforms would avoid many of the governance and policy hurdles. However, this would forgo the benefits of full DLT integration, BIS concluded. In addition, the trial only involved a wholesale CBDC that would only be available to banks and other payment services providers. A retail CBDC would have different policy implications.

The proof of concepts are not an indication that SNB is planning on issuing a CBDC, the bank noted.

Andréa M Maechler, a member of SNB’s governing board remarked, “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.”

In a press conference, Maechler further noted that DLT has “yet to prove that it can deliver efficiency gains at scale without compromising security or reliability,” as reported by local news outlet Swiss Info.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

See also: Swiss National Bank alternate member of the governing board Thomas Moser talk about “Central Bank Digital Currencies and Blockchain: The view from the Swiss National Bank” at CoinGeek London 2020 conference