In June 2024, the Swiss National Bank (SNB) became the world’s first central bank to conduct a live monetary policy operation on a regulated infrastructure that is based on distributed ledger technology (DLT). As part of Project Helvetia III, the SNB successfully issued digital SNB Bills settled in wholesale central bank digital currency (wCBDC) in a production environment.
This pilot operation showed that implementing monetary policy on a DLT-based infrastructure is feasible and effective. While the corresponding processes bring about some improvements, new challenges emerge, wrote the SNB in a recent note.
The SNB successfully absorbed Swiss franc liquidity by issuing digital SNB Bills and gained valuable experience in the process. The corresponding processes bring improvements and simplifications in some places but also give rise to new challenges. We list the main take-aways below.
First, the SNB acted as the issuer, issuer agent and paying agent. Taking these three roles allowed the SNB to gain valuable insights into pre- and post-trading operations on a DLT-based infrastructure. These operations were independently conducted by the SNB’s back office, which increased internal transparency and reduced coordination efforts. At the same time, the SNB had to establish new processes that were previously outsourced to the central securities depository when issuing conventional SNB Bills.
Second, the SNB had to set up new cash management processes. For conventional SNB Bills, reserves, in the form of SIC balances, are received (or paid) in the SIC system so that only basic cash management is needed. In contrast, wCBDC had to be exchanged with SIC balances as part of the tokenisation process before it was used to settle digital SNB Bills.
Third, fully automating the processes for digital SNB Bills was out of scope to adhere to the timeframe of Project Helvetia III. If the SNB were to issue digital SNB Bills on a regular basis, then those processes would have to be addressed. For example, integrated trading and settlement, which allow for straight-through processing, would be essential for handling realistic volumes and numbers of participants during both auction and post-trading activities. Similarly, the entire potential of DLT for automating post-trading activities could not be fully investigated during the pilot and would require further work.
Overall, DLT-based markets remain niches for the time being. The number of participants and the traded volumes on DLT-based infrastructures are yet to increase. Hence, the question of whether to conduct monetary policy operations on a DLT-based infrastructure is premature.
Ramping up such operations would also entail significant investment for the SNB, its counterparties as well as infrastructure providers and, in the current environment, stands in contrast to a lean monetary policy operational framework. Nevertheless, the valuable insights gained via the issuance of digital SNB Bills allowed the SNB to better estimate the investments needed to implement monetary policy on DLT-based infrastructures were it to become necessary in the future.