The Bank for International Settlements (BIS) reported that the closed testing of the concept of the state cryptocurrency based on DLT and its interaction with financial markets has yielded positive results.
According to the BIS report, the testing was conducted by the Swiss National Bank (SNB) in cooperation with the Innovation Hub BIS and the Swiss stock exchange operator SIX. The project considered the possibility of using the wholesale digital currency of the central bank for settlements, as well as for connecting DLT-based platforms with existing payment systems.
BIS reported that the Helvetia project demonstrated the feasibility of both approaches. When using the 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 created by the state-owned cryptocurrency. However, the test results showed that this could also reduce the potential benefits of fully integrating distributed registries.
“In general, the tokenization of money and assets on a single DLT platform simplifies transaction calculations and supports a wide range of use cases. However, issuing a wholesale state-owned cryptocurrency is likely to require significant changes in the central bank’s processes and operations, ” the report said.
Integrating DLT into existing payment systems will be a relatively simple approach. However, it will reduce the efficiency that can be increased by integrated tokenized money and central bank securities, since it will function more as a link rather than as a common base.
According to the BIS statement, the experiment does not indicate the SNB’s intention to issue a wholesale state-owned cryptocurrency on the SIX Digital Exchange (SDX) platform. It is necessary to further explore various options to compromise with some of the risks and benefits of 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 first experiment in the field of issuing a wholesale state-owned cryptocurrency conducted by the Swiss central bank and complements the planned launch.
“If DLT can provide significant improvements in securities trading and settlement, the SNB will be ready for this,” said SNB Board member Andrea 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 monetary policy implications. 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 issue of state cryptocurrencies as part of the BIS initiative, and this fall it was reported that the SNB and BIS plan to start testing the state digital currency before the end of this year.