Today the BIS shared the results of the Swiss wholesale central bank digital currency trials, Project Helvetia. The Swiss stock exchange SIX is readying to launch the SIX Digital Exchange (SDX), which uses distributed LEDGER technology (DLT). As a result, the Swiss National Bank launched a trial with SIX and the BIS to explore the potential for a wholesale CBDC so that payments for digital assets could be settled instantly, or delivery versus payment (DvP).
The result of the digital Swiss Franc trial is that the experiment was successful, but further work is needed. The Proof of Concept involved two options, the wholesale CBDC (w-CBDC) and connecting the DLT to the real-time gross settlement system (RTGS). In Switzerland, the RTGS, called SIC, is operated by a SIX subsidiary on behalf of the central bank.
However, the paper considered both solutions experimental, which leaves a question of how settlement will happen when SDX goes live? We’ve asked but didn’t get a response in time for publication. At one point, the paper noted that a CBDC means that participants have to manage two sets of central bank money, making liquidity management more complex. But it added, “this is also true if a private coin is used”, which perhaps is a hint as to the solution at SDX launch.
The advantage of using the RTGS payment system integration versus a w-CBDC is there is relatively little impact in terms of policy. But that lower-risk option for the central bank lacks the advantages of a CBDC, which enables DvP. With DvP, because the payment and transfer of the digital asset both happen simultaneously, the transactional risk of non payment is extinguished.
However, for the trial, no changes were allowed to the RTGS and it was noted that if the RTGS could be altered, DvP might be possible without a w-CBDC.
Another issue is access to the DLT platform. The concern is that w-CBDC should only be available to those who already have access to central bank accounts. If the w-CBDC is used on a DLT, the central bank would need to influence the DLT platform’s governance to restrict access to the w-CBDC. The alternative is to broaden access to central bank money, which has broader policy implications.
The design of any CBDC is always a critical factor. In this experiment, the CBDC was allowed to be held overnight. The advantage is it can be used for overnight or longer-term contracts. But that also meant negative interest had to dealt with. However, if the CBDC had to be redeemed at day’s end, it would be simpler. In a talk two weeks ago, the BIS’ Benoit C?ure noted that different policies for CBDC could result in fragmented monetary policy.
In the future the project aims to explore more questions such as integration with core banking systems. And it also wants to look at using the w-CBDC across borders.
“If wholesale CBDCs are to fulfil their potential as a new means of settlement, their design and implications deserve close study and consideration. This is only possible via continued deliberations and experimentations among central banks and with other stakeholders, such as market supervisors and the private sector. Given the speed of digital transformation, central banks – and others – need to learn fast to make informed policy decisions,” said Benoit C?ure, Head of the BIS Innovation Hub.
