The Swiss National Bank (SNB) is moving forward with the Helvetia III pilot project, becoming the first central bank in the world to issue a tokenized central bank digital currency (CBDC) on a regulated third-party platform.
The SNB has been extensively researching the development of a digital central bank currency (CBDC) and identified early on the privacy issues associated with a central registry of all financial transactions. As part of "Project Helvetia," research has been underway since 2019 on how to settle securities transactions and cross-border payments using blockchain technology and a digital Swiss franc.
Despite the potential benefits of a CBDC, the SNB has emphasized that the current risks to consumers outweigh the benefits, and that implementation would primarily make sense for financial institutions. Speaking at an event this week, SNB President Thomas Jordan emphasized that the tokenization of assets based on distributed ledger technology (DLT) enables a more efficient and transparent transfer of assets in real time.
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Transactions involving tokenized assets
In Switzerland, 2.5% of Swiss franc bonds are already tokenized, making Switzerland a leader in the field. As part of the Helvetia III pilot project, the SNB is currently investigating the possibility of settling tokenized asset transactions with tokenized central bank money in Swiss francs. This money could be used for transactions on third-party platforms that also hold the tokenized assets.
Initial results suggest that the benefits of transactions in central bank money remain in a tokenized world. However, important questions are still open about the next steps. The choice of the right instruments for settlement and the required standards are still open. In addition, the requirements for third parties to participate in these transactions are still under consideration.
Immediate payments for Swiss banks
The SNB has also optimized the SIC payment system to enable instant payments. This means that payments between accounts can be made in a matter of seconds, around the clock. Jordan emphasizes that these developments lay the foundation for future competition and innovation in payments. By late summer, some 50 banks, which process 98% of customer payments in Switzerland, are expected to be able to use the technology.
Instant payments allow individuals and businesses to make payments directly from account to account in seconds, around the clock. Jordan emphasized that this not only speeds up payments, but also promotes competition among payment methods and drives innovation such as programmable payments.
The Agorá project
The Bank for International Settlements (BIS), in collaboration with seven central banks and the private sector, is researching tokenization to improve the functioning of the monetary system. Named after the Greek word for marketplace, Project Agorá involves the SNB and the central banks of France (for the Eurosystem), Japan, Korea, Mexico, the Bank of England and the Federal Reserve Bank of New York. They will work in partnership with a large number of private financial firms brought together by the Institute of International Finance (IIF).
The project will explore the integration of tokenized commercial bank deposits with tokenized central bank money on a programmable financial platform. Solutions enabled by smart contracts could improve the monetary system while maintaining itd two-tier structure. This would also increase efficiency of the current payment system, especially for cross-border transactions. Various legal, regulatory and technical challenges as well as time differences will be taken into account.
