Switzerland Explores Digital Central Bank Money
As part of a proof of concept, SIX is working with the SNB to explore technological options to make digital central bank money available for the trading and settlement of tokenized assets between financial market participants. The technological foundation for its feasibility is provided by the SIX Digital Exchange, which uses distributed ledger technology.
— SIX (@sixgroup) October 8, 2019
The SIX Digital Exchange (SDX) continues to progress according to plan, making it the world’s first distributed ledger technology (DLT)-based platform for the issue, trading, settlement and custody of digital assets.
This exchange innovation is now joining forces with innovation in the currency space: SIX is working with the Swiss National Bank (SNB) on a proof of concept to explore how digital central bank money could be used in the settlement of tokenized assets between market participants. This study is being conducted in line with the Centre for Research into Innovative Financial Technologies (the BIS Innovation Hub Centre), which was recently established by the SNB and the Bank for International Settlements (BIS) in Switzerland.
As part of this proof of concept, SDX will provide its platform to explore technical possibilities for integrating digital central bank money into DLT platforms. Possibilities include the connection of the existing Swiss Interbank Clearing System or the issue of digital Swiss franc tokens by the SNB for financial market participants (a so called, wholesale central bank digital currency) on the SDX system.
The economic opportunities that could result from the availability of digital central bank money in the future are significant. The DLT-based exchange of ‘tokenized’ assets and digital central bank money has the potential to reduce counterparty risk and enable innovative forms of value creation in finance.
Jos Dijsselhof, CEO SIX: “As the operator of the Swiss financial market infrastructure, we welcome the initiative of the SNB and the BIS to conduct more research into innovative financial technologies in Switzerland. We are pleased to contribute to this initiative and, through SIX Digital Exchange, to explore the technological possibilities with which the SNB could support token-based financial ecosystems in the future by providing digital central bank money for financial market participants.”
Thomas Zeeb, Head Securities & Exchanges, SIX: “Innovation means breaking new ground. With the SIX Digital Exchange, we are following this path with a number of partners from the Swiss financial center. We are delighted to have the Swiss National Bank and the Bank for International Settlements at our side. Our proof of concept on the subject of digital central bank money for financial market participants on DLT platforms will not only provide technological insights, but will also send an important signal to all market participants to take steps to explore DLT technology and digital assets.”
SNB press release:
The Swiss National Bank (SNB) and the Bank for International Settlements (BIS) have today signed an Operational Agreement on the BIS Innovation Hub Centre in Switzerland.
The @BIS_org Innovation Hub is quickly taking shape with the 2nd operational agreement side yesterday with @SNB_BNS_en. The Swiss center will focus on wholesale #cbdc and asset #tokenization, as well as monitoring of fast-paced markets. Very exciting! pic.twitter.com/60WD4NLi7k
— Raphael Auer (@RaphAuer) October 9, 2019
The Hub will identify and develop in-depth insights into critical trends in technology affecting central banking, develop public goods in the technology space geared towards improving the functioning of the global financial system, and serve as a focal point for a network of central bank experts on innovation. In the initial phase, Hub Centres will be established in Switzerland, Hong Kong and Singapore.
The Swiss Centre will initially conduct research on two projects. The first of these will examine the integration of digital central bank money into a distributed ledger technology infrastructure. This new form of digital central bank money would be aimed at facilitating the settlement of tokenised assets between financial institutions. Tokens are digital assets that can be transferred from one party to another. The project will be carried out as part of a collaboration between the SNB and the SIX Group in the form of a proof of concept.
The second project will address the rise in requirements placed on central banks to be able to effectively track and monitor fast-paced electronic markets. These requirements are arising in particular from the greater automation and fragmentation of the financial markets, but also from the increased use of new technologies.
Thomas J. Jordan, Chairman of the Governing Board of the SNB, said “The SNB has for some time been closely following the digitalisation of the financial sector and technological innovations in the areas covered by its mandate. Through the cooperation at the BIS Innovation Hub Centre in Switzerland, the SNB will be able to further expand its expertise in the area of financial markets and their infrastructures. We look forward to bolstering our collaboration with the BIS and other central banks in this space.”
Agustín Carstens, General Manager of the BIS, said “We are very proud that one of the first three Hub Centres will be here in Switzerland, where the BIS has been based for nearly 90 years. Switzerland is a hotbed of innovation. This comes on top of its overall competitiveness, well-established financial ecosystem, and strong academic institutions specialising in technology.”
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