The Bank for International Settlements (BIS) reported that closed testing of the concept of a state-owned cryptocurrency based on DLT and its interaction with financial markets has yielded positive results.
According to BIS, the testing was carried out by the Swiss National Bank (SNB) in collaboration with the BIS Innovation Hub and the Swiss stock exchange operator SIX. The project considered the possibility of using the central bank's wholesale digital currency for settlements, as well as for linking DLT-based platforms with existing payment systems.
BIS reported that the Helvetia project has demonstrated the feasibility of both approaches. When using state cryptocurrency exclusively by banks and financial institutions, the wholesale cryptocurrency of the Central Bank has potential advantages, although it creates some problems for regulation and management.
Connecting existing payment systems, such as the SNB interbank payment network, to digital asset platforms can help avoid the obstacles posed by government cryptocurrency. However, test results have shown that this can also reduce the potential benefits of full distributed ledger integration.
“Overall, tokenizing money and assets on a single DLT platform simplifies transaction settlement and supports a wide range of use cases. However, the release of wholesale government cryptocurrency is likely to require significant changes in the processes and operations of the central bank.”
Integrating DLT into existing payment systems would be a relatively straightforward approach. However, it will reduce efficiency, which can be improved by integrated tokenized money and central bank securities, since it will function more as a liaison rather than a common base.
According to the BIS statement, the experiment does not indicate SNB's intention to release a wholesale government cryptocurrency on the SIX Digital Exchange (SDX) platform. There is a need to further explore the various options for compromising some of the risks and benefits in issuing such an asset.
In March, SDX announced that it plans to launch its own blockchain-based stock exchange later this year. The Helvetia project was the Swiss central bank's first wholesale government cryptocurrency experiment to complement the planned launch.
“If DLT can deliver significant improvements in securities trading and settlement, SNB will be ready for it,” said SNB board member Andréa Maechler.
Since the wholesale government cryptocurrency model used for this testing is more like exchanging cash for tokenized ones, it is likely to have limited implications for monetary policy. The report also notes that this model could potentially "lead to some segmentation of the money market, which could negatively affect its efficiency and liquidity."
Last year, it became known that the Swiss National Bank will study the issuance of state cryptocurrencies as part of the BIS initiative, and this fall, information appeared that SNB and BIS plan to start testing the state digital currency by the end of this year.
