BIS, SNB and SIX test wholesale CBDC settlement integration with five banks

  • Project Helvetia looks toward a future with more tokenized financial assets based on distributed ledger technology coexisting with today’s systems.
  • Swiss National Bank and five commercial banks integrated wholesale CBDC in their existing back-office systems and processes.
  • Tests covered a wide-range of transactions in Swiss francs – interbank, monetary policy and cross-border.

Integrating a wholesale central bank digital currency (CBDC) into existing core banking systems is complex and a key prerequisite for issuance. Phase II of Project Helvetia successfully demonstrates that such integration is operationally possible. Issuing a wholesale CBDC on a distributed ledger technology (DLT) platform operated and owned by a private sector company is feasible under Swiss law.

The second phase of Project Helvetia is a joint experiment by the Bank for International Settlements (BIS), the Swiss National Bank (SNB) and SIX (Switzerland’s main provider of financial infrastructure services), which also included five commercial banks: Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS.

Project Helvetia looks toward a future in which more financial assets are tokenized and financial infrastructures run on DLT. International regulatory standards suggest that operators of systemically important infrastructures should settle obligations in central bank money whenever practical and available. While none of the existing DLT-based platforms are systemic yet, they may become so in the future. Moreover, central banks may need to extend monetary policy implementation to tokenized asset markets.

The experiment was carried out during the fourth quarter of 2021. It explored the settlement of interbank, monetary policy and cross-border transactions on the test systems of SIX Digital Exchange (SDX), the Swiss real-time gross settlement system – SIX Interbank Clearing (SIC) – and core banking systems.

“We have demonstrated that innovation can be harnessed to preserve the best elements of the current financial system, including settlement in central bank money, while also potentially unlocking new benefits. As DLT goes mainstream, this will become more relevant than ever,” said Benoît Cœuré, head of the BIS Innovation Hub, in a statement.

“To continue fulfilling their mandates of ensuring monetary and financial stability, central banks need to stay on top of technological change. Project Helvetia is a prime example of how to achieve this. It allowed the SNB to deepen its understanding of how the safety of central bank money could be extended to tokenized asset markets,” said Andréa M Maechler, member of the Governing Board of the SNB.

SIX is proud to collaborate with the BIS Innovation Hub and the SNB and contribute to Project Helvetia by leveraging SDX, the world’s first regulated DLT-based financial market infrastructure. The project demonstrates that the SDX platform supports wholesale CBDC for settling tokenized assets end to end,” said Jos Dijsselhof, CEO at SIX, in a statement.

Settlement of monetary policy transactions

As part of the experiment, the settlement of monetary policy transactions on a tokenized asset platform was tested. To do so, the central bank issued (redeemed) wCBDC linked with a DvP settlement of a tokenized asset purchase (sale). As a result, the central bank balance sheet expanded (reduced).

Established operational processes in the central bank’s core banking system and the RTGS system were used to create central bank money with monetary policy transactions. To extend money creation to tokenized asset markets, the solution design re-uses the same processes as for the wCBDC issuance and DvP settlement on the SDX platform by commercial banks.

Specifically, the central bank issues wCBDC by transferring newly created reserve balances from its own settlement account to the technical account in the RTGS system, and expands the outstanding amount of central bank money through a subsequent DvP transaction by providing a commercial bank with wCBDC. This transaction is booked and reconciled at the end of the day in the core banking system.

It expands the central bank’s balance sheet, with the central bank holding tokenized securities as part of its assets and the newly created wCBDC as a liability. A reduction of central bank money can be achieved by the central bank acting as a wCBDC-taker in a DvP transaction. If both the expansion and reduction of central bank money take place intraday and have the same size, it has no balance sheet effect.

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