A group of central and commercial banks has successfully tested the integration of wholesale central bank digital currencies (CBDCs).

In a new report, released today, the Swiss National Bank (SNB) and the Bank of International Settlements (BIS) detail how they settled wholesale CBDCs transactions using existing back-office systems and processes at five commercial banks.

The tests were conducted in Q4 2021 in partnership with SIX, Switzerland’s largest provider of financial infrastructure. 

The participating banks included Citi, UBS, Credit  Suisse, Goldman Sachs, and Hypothekarbank Lenzburg.

Using the SIX Digital Exchange (SDX), SIX Interbank Clearing (SIC) – Switzerland’s real-time gross settlement system – and core banking systems, the tests.covered a wide-range of transactions in Swiss francs, including interbank, monetary policy, and cross-border.

Benoît Cœuré, head of the BIS Innovation Hub, said: “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.”

Project Helvetia – an exploration of CBDCs

The tests were part of Project Helvetia, a collaboration between the SNB, BIS, and SIX to study the potential of tokenised financial assets using distributed ledger technology (DLT).

Project Helvetia aims to find out whether such assets can co-exist with today’s existing financial infrastructure.

Its latest report – known as Phase II – demonstrates that such integration is operationally possible.

It further notes that, under Swiss law, the issuance of a wholesale CBDC using a DLT platform is also feasible.

Jos Dijsselhof, CEO of SIX, said that “SIX is proud to 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 tokenised assets end to end.”

In a press statement, the group emphasised that Project Helvetia is of an “exploratory nature”, and should not be interpreted as an indication that the SNB plans to issue a wholesale CBDC.

The project dates back to 2020, when Phase I was first conducted.

Andréa M. Maechler, member of the governing board at SNB, said: “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 tokenised asset markets.”

UK House of Lords – ‘no convincing case’ for CBDC

In related news, a UK House of Lords committee has today published its latest findings on the necessity and impact of a British CBDC, previously dubbed ‘Britcoin’ by Chancellor Rishi Sunak.

The Economic Select Committee, whose members include former Bank of England Governor Lord King of Lothbury, concluded that there is “no convincing case” for a UK CBDC.

The committee found that a UK CBDC would present a number of major risks to the health of the UK economy and financial system, while conferring little benefit for businesses and citizens.

In an economic downturn, a CBDC could heighten the risk of a run on the banks, the committee found.

The committee also flagged privacy issues as a major concern – given that issuing central banks could have unprecedented powers to track transactions – and the possibility that a CBDC would make Britain vulnerable to attack by hostile governments.

In sum, the committee characterised CBDCs as a “solution in search of a problem”, which is what they titled their latest report on the issue.