The Swiss National Bank (SNB) has been experimenting with the possibilities of central bank digital currencies (CBDC) for a considerable time. As a result, the SNB was one of the first central banks to recognize the data protection problems associated with a central real-time register of all financial transactions.
In 2019, the Swiss National Bank first expressed its opinion on the status of CBDCs at the time and, together with the infrastructure provider SIX, examined the use of a digital franc in the national financial system. Two years later, the Bank for International Settlements (BIS) was brought in as part of "Project Helvetia" to process securities transactions with digital central bank money. This was expanded to include cross-border payments under the name "Jura". An assessment of the SNB's current CBDC efforts.
SNB erforscht Anwendungen eines CBDCs
In 2021, the Helvetia project showed in a realistic environment that the provision of central bank money for the settlement of securities transactions can be implemented using blockchain technology. What started out as just an experiment, the SNB soon revealed the potential of a central bank digital currency (CBDC). The idea was tested internationally with other projects. However, the Swiss National Bank made one thing clear from the start: for consumers, the risks of a CBDC currently outweigh the benefits. The potential digital franc would primarily be suitable for financial institutions.
After the Banque de France experiments, the SNB tackled decentralized finance (DeFi) protocols. The joint project "Mariana" of various central banks examined cross-border trading and the processing of wholesale CBDCs using DeFi protocols. Today, decentralized financial applications on public blockchains use so-called Automated Market Makers (AMMs) to automate the crypto markets. Similar DeFi protocols could form the basis for a new generation of financial infrastructure in the future, according to the Swiss National Bank.
Data protection through complex cryptography
With its Innovation Hub, the Bank for International Settlements (BIS) supports central bank experiments on public goods in the technological sector. Its center in Basel, together with the SNB, created a prototype of a digital central bank currency (CBDC) with integrated data protection as part of the "Tourbillon" research project. The results will be relevant for both wholesale and retail CBDCs and are expected to be finalized by mid-2023.
The project is led by renowned cryptographer David Chaum, best known as the founder of eCash - a form of digital cash tested in the 1990s and believed to be the predecessor of Bitcoin. Together with Thomas Moser, deputy member of the SNB Governing Board, Chaum laid the theoretical foundation for the CBDC project in a study paper on eCash 2.0.
"CBD CBDC can make payments better and more inclusive. However, deploying a CBDC comes with difficult tradeoffs between cyber resilience, scalability and privacy. Project Tourbillon is developing and testing a prototype that balances these trade-offs and pushes the technological limitations of the central banks expanded." - Morten Bech, Head of the BIS Innovation Hub Center in Switzerland
