Home Blockchain Swiss central bank undertakes ‘world first’ tokenised ‘monetary policy operation’

Swiss central bank undertakes ‘world first’ tokenised ‘monetary policy operation’

SNB head office in Zurich: the central bank issued digital SNB bills on the SIX Digital Exchange (SDX) earlier this month, it has announced – also, Project Helvetia will be continued for ‘at least two more years’ and its scope ‘broadened’; inset: Global Government Fintech’s article (7 November 2023) on Project Helvetia’s third stage | Credit: SNB

The Swiss National Bank (SNB) has announced that it has become the world’s first central bank to ‘carry out a monetary policy operation in a live production environment’ using distributed-ledger technology’ (DLT).

It made the announcement during a press conference in Zurich (20 June) that led with updates on topics such as inflation and the Swiss economic outlook before focusing on fintech-related innovation – chiefly new ambitions for its wholesale central bank digital currency (CBDC) pilot initiative ‘Project Helvetia’.

The SNB stated that it had successfully issued digital SNB bills on the SIX Digital Exchange (SDX) – the ‘tokenised assets’ platform sibling of the SIX Swiss Exchange, Switzerland’s principal stock exchange – ‘at the beginning of June’. The token-based bills, which had an issuance volume of CHF 64 million (about £56.6m/$71.6m), had a one-week term.

Project Helvetia – which is already in its third stage – is to be continued for ‘at least two more years’ and its scope ‘broadened’, the central bank also announced. The third stage, which began in December 2023, had been scheduled to run to the end of this month (June 2024).

The pilot programme has enabled the SNB to ‘play a globally leading role in deploying wholesale CBDC in a live production environment’, the central bank said, adding that it ‘hopes that additional financial institutions will participate over time and that wholesale CBDC can be made available for a wider range of financial transactions.’

Project Helvetia’s next steps

The first Project Helvetia report, published in conjunction with the Bank for International Settlements (BIS) Innovation Hub, was published in December 2020. The second phase added commercial banks to the experiment, integrated wCBDC into the core banking systems of the central bank and commercial banks, and ran transactions ‘from end to end’.

Phase three (‘Project Helvetia III’) has seen the SNB moving its wholesale CBDC activity from test environments into production, with banks carrying out transactions on SDX as intermediaries for issuers and investors. BIS has not been involved in this phase.

The cantons of Basel-Stadt and Zürich, the cities of Lugano and St Gallen, as well as UBS and the World Bank have each issued a bond via SDX as part of phase three. Banque Cantonale Vaudoise, Basler Kantonalbank, Commerzbank, Hypothekarbank Lenzburg, UBS and Zürcher Kantonalbank have been the participant banks. The total value of transactions settled is about CHF 750 million (about £663m/$839m).

Looking to the project’s proposed broadening, the SNB stated that ‘financial institutions will be informed in due course about how they can participate’.

‘By continuing the Project Helvetia pilot, the SNB is supporting private-sector innovation,’ its announcement continued. ‘The future success of the pilot project will largely depend on whether new financial market participants join, whether the volume of transactions increases, and whether additional financial market transactions are settled on this platform.’

RELATED ARTICLE Swiss National Bank puts CBDC into production for bond transactions – our news story (7 November 2023) on the third stage of Project Helvetia

‘Groundwork for the future of finance’

SIX/SDX put out its own announcement the same day as the SNB’s press conference (20 June), describing the continuation of the Helvetia pilot as making a ‘significant milestone, paving the way for wider adoption of the tokenised ecosystem.’

“This represents a major step forward in the financial industry’s digital transformation,” said SIX chief executive Jos Dijsselhof. “Pioneering the use of wholesale central bank digital currency goes beyond enhancing the efficiency and security of financial transactions, it is the groundwork for the future of finance. This project underscores our commitment to innovation and cements Switzerland’s position at the forefront of digital asset adoption in capital markets.”

“Robust and scalable financial market infrastructure requires that wholesale transactions be settled in central bank money, the safest form of money,” said SIX Digital Exchange head David Newns. “To fully utilise blockchain’s potential, both the tokenised investment and the settlement asset must be on the same chain. Project Helvetia III demonstrated that SDX can meet these requirements.”

“The participation of leading financial institutions and the issuance of six digital bonds to date, totalling more than CHF 750 million, settled in wholesale CBDC, highlights market confidence in our digital asset infrastructure,” Newns continued. “SDX continues to advance digital financial markets, with the continued Helvetia pilot allowing more participants to adopt digital assets with on-chain [blockchain] wholesale CBDC settlement.”

The SNB said during its press conference that its wholesale CBDC-related activity does not constitute a commitment to introduce wholesale CBDC or digital SNB bills on a permanent basis.

RELATED ARTICLE World Bank issues Swiss digital bond with settlement in wholesale CBDC – a news story (17 May 2024) on the World Bank pricing the first Swiss franc digital bond by an international issuer – also the first CHF digital bond by an international issuer that will settle using wholesale central bank digital currency provided by the SNB

SNB’s promissory notes experimentation

The SNB and World Bank are also collaborating to develop a prototype platform for the tokenisation of financial instruments known as promissory notes.

The experimentation, which was announced in January and is expected to run for at least 12 months, is being spearheaded by the BIS Innovation Hub. The International Monetary Fund (IMF) is participating as an observer.

The context to the initiative – known as ‘Project Promissa’ – was presented by the BIS Innovation Hub as having the potential to help a G20 ambition to deliver better, bigger and more effective multilateral development banks by substantially increasing their financing capacity.

‘Today, many international financial institutions (including multilateral development banks – MDBs) are partly funded by financial instruments known as promissory notes, most of which are still paper-based,’ a BIS Innovation Hub webpage for the project explains.

‘While the current system provides the operational controls for member nations to make subscription and contribution payments to institutions like the World Bank, the custody of outstanding promissory notes can be digitised to address operational challenges and enhance efficiency,’ the webpage states.