SNB, an acronym for Swiss National Bank, has announced the launching of a pilot project with CBDC, which is Central Bank Digital Currency. It will run from December 2023 to June 2024 in association with six financial institutions. The pilot project has been tagged as Helvetia Phase III and will see the wholesale CBDC in action for the first time.
Financial institutions participating in the SNB pilot project are:
- Banque Cantonale Vaudoise
- Basler Kantonalbank
- Hypothekarbank Lenzburg
- Zürcher Kantonalbank
The settlement will leverage the delivery-versus-payment mechanism for tokenized bonds. It is backed by the financial infrastructure that is based on DLT, or distributed ledger technology. This has also granted SNB a lead among the countries that are planning to deploy CBDC at the earliest. Needless to say, the full-fledged implementation of improvements will happen only after observing positive results in the pilot project.
Launching the pilot project marks the transition from the testing phase to the production phase. CBDC will now be available for the settlement of real bond transactions. All the banks involved are tasked with carrying out transactions as intermediaries on the platform for two parties, namely investors and issuers.
All the participating financial institutions will tokenize using the SIC infrastructure along with SIX SIS for its integration with traditional bond settlement infrastructure. Two crucial tools that will be used to test the trading and settlement of repo transactions are the SIX Repo and SDX test systems. The test will be conducted with wholesale CBDC.
However, it is essential to observe that DLT is not a new technology for regulated financial systems. DLT and tokenized assets have been introduced in the past to achieve greater transparency and efficiency advantages.
A question is also making the rounds about how the Central Bank currency will survive the wave of this pilot project or its success in the next few months. SNB has assured the community that the Central Bank money will continue playing its role in maintaining the efficiency and stability of the financial system at a macro level.
Swiss National Bank emphasized in a press release that the Helvetia Phase III pilot project does not inherently guarantee a permanent position for wholesale CBDC. The sole or primary objective is to test the functionality of various models for settling tokenized assets.
This development comes months after the SNB announced it was evaluating three distinct models for settling tokenized asset transitions. Helvetia Phase III, the upcoming pilot project, employs the first model, wherein the functions are about issuing wholesale CBDC to sell tokenized assets.
The other two models revolve around linking the settlement systems for tokenized assets with the SIC payment system and using private and bankruptcy-protected token money that is backed by Central Bank money.
Thomas Jordan, the chairman of the SNB’s Governing Board, stated that for the first time they are enabling the settlement of transactions in a secure and efficient fashion via wholesale CBDC on a regulated and productive DLT platform.