BIS and SNB announce first digital currency conceptual experiment is successful

Source: 21st Century Business Herald

Author: Hu Tianjiao reports from Beijing

On December 3rd local time, the Bank for International Settlements (BIS) stated that the conceptual experiment of integrating tokenized digital assets and central bank currencies jointly conducted by its Innovation Center (BISIH) Swiss Center, the Swiss National Bank (SNB) and financial infrastructure operator SIX Digital Exchange (SIX) was successfully completed.

The project, also known as the Helvetia project, explores the technical and legal feasibility of transferring digital assets and how the central bank’s approach to funding wholesale settlements will be adjusted by issuing wholesale digital currency on a distributed digital asset platform and connecting the digital asset platform to the existing wholesale payment system, and connecting the DLT platform to the existing payment system (PoC2) in near real time.

Switzerland has always been a leader in finance and technology in Europe, so its cooperation with the Swiss Center of the BIS Innovation Center and SIX is not surprising. This project is also the first large-scale digital currency experiment of the Swiss National Bank to explore how open cooperation can enhance understanding and consensus on the impact of digital innovation on the financial system.

Two proofs of concept were conducted under the project: issuing a new wholesale central bank digital currency (w-CBDC) and establishing a connection between the new securities settlement platform (SDX) and the existing central bank payment system. The experimental results confirmed that both methods are feasible.

In Switzerland, private experiments in this area are about to become a reality, the project report states. The new Digital Currency Exchange (SDX) is expected to be launched soon, issuing, trading, settling, managing and custodial for tokenized assets (i.e. assets that exist on a DLT platform and are settled in privately issued digital currencies). It is not yet clear how well this and other developing platforms will be accepted around the world.

However, the report also points out that no matter what technology is adopted in the financial market, the security and reliability of financial infrastructure must be guaranteed. If DLT can indeed significantly improve securities trading and settlement, then central banks must be prepared to adapt.

BIS said that one of the fundamental purposes of central banks is to provide safe and liquid settlement assets. Central bank funds are widely used for large-scale and critical settlements and are essential to the functioning of the global financial system. International standards require financial authorities to settle in central bank money whenever feasible, and central banks are also experimenting with new technologies to ensure that if the structure of the financial system changes, settlement can be carried out in central bank money, such as digital currency.

"Wholesale digital currencies have potential advantages when settling digital assets, but the policy and governance barriers they may bring cannot be ignored, and connecting existing systems to new DLT platforms will avoid these side effects. Although the Helvetia project explored wholesale digital currencies, it was limited to banks and other financial institutions, and retail digital currencies were not within the scope of this experiment," said the BIS.

The project report stated that the Helvetia project successfully tested various ways to settle tokenized assets in central bank currencies. Next, further work will be to better understand the practical complexity and policy implications of wholesale digital currencies, and also to explore how to better balance risks and benefits.

Andréa M Maechler, a member of the Swiss National Bank’s Board of Governors, said that no matter what technology the financial markets adopt next, the security and reliability of Switzerland’s financial infrastructure must be protected, and if DLT can significantly improve securities trading and settlement, the Swiss National Bank will be ready to welcome it.

Benoît Cœuré, chairman of the BIS Innovation Center, pointed out that if wholesale digital currencies are seen as a new means to solve existing problems, it is necessary to pay close attention to and study their design framework and the associated impacts on monetary policy, financial market stability, etc., which can only be achieved through cooperation among stakeholders such as central banks, market regulators and the private sector.

It should be noted that the BIS reminds that the project should not be seen as a sign that the Swiss National Bank will promote digital currency on a large scale, nor should it be interpreted as the Swiss National Bank planning to issue digital currency on the SDX platform or allow Swiss banks to trade on the SDX platform.
(Author: Hu Tianjiao Editor: Zhou Pengfeng)