on the crypto
The Bank for International Settlements (BIS) announced last week an experiment by the Swiss National Bank (SNB) that tested how central bank-issued money can be linked to financial markets based on distributed ledger technology (DLT), producing positive results. .
Pros and cons of a large-scale CBDC
Launched by the Swiss National Bank in collaboration with the BIS Innovation Hub and Swiss stock exchange operator SIX, the project examined the feasibility of using a large-scale central bank digital currency (CBDC) to regulate digital assets and connect DLT platforms to existing payment systems.
According to the BIS report, the project has demonstrated the feasibility for both approaches. Under the name “Helvetia Project”, the project highlights that when a CBDC limited to banks and financial institutions is to be used, a large-scale CBDC has potential benefits, although it also raises some governance and policy challenges.
The downside is that while connecting existing payment systems such as the SNB's interbank payment network to digital asset platforms could avoid the hurdles raised by a CBDC, the results found that it could also reduce the potential benefits of integration. complete with the registers distributed.
The exploration doesn't have to stop there
The report added that while integrating DLT into existing payment systems would be a relatively straightforward approach and would not deviate too much from the current system, it would also reduce the increased efficiency of integrated tokenized central bank money and securities because it would work more like a link that as a common basis.
Noting that the experiment is not an indication of the SNB's intentions to issue a large-scale CBDC on the SIX Digital Exchange (SDX) platform, the announcement states that several design choices should also be explored to offset some risks and benefits in the issuing a CBDC. SDX said in a March report that it plans to launch its blockchain-based stock exchange later this year.
Better understand the political and fiscal implications of a CBDC
The Helvetia project, the report states, was the Swiss central bank's first large-scale CBDC experiment and completes the planned launch of blockchain-based SDX. "If the DLT can provide significant improvements in securities trading and settlement, the SNB will be prepared," said Andréa M Maechler, member of the SNB board of directors in the announcement.
Since the large-scale CBDC model used for this test functions more like a traditional money exchange with tokenized money, it would likely have limited monetary policy implications.
But the report also noted that this model could potentially "lead to a segmentation of the money market, which could adversely affect its efficiency and liquidity."
The report says the next step would be to better understand the political and fiscal implications of integrating large-scale CBDCs into core banking systems and explore their capabilities across borders.
