A project conducted in Europe wants to study the feasibility of integrating digital tokens into central bank systems. The experiment was named The Helvetia Project and is the result of a partnership between the Bank for International Settlements’innovation hub with the Swiss National Bank (SNB) and SIX, a market infrastructure operating company.
The experiment assumes that digitization has brought improvements to the settlement of compensations around the world. But that still little has changed structurally. Meanwhile, the private sector invests in Distributed Ledger Technology (DLT) and asset tokenization, leading to changes in the organization of financial markets.
For testing the integration of tokenized assets, the project used SDX, SIX’s digital exchange. There were two experiments: one on issuing a central bank digital currency with a focus on wholesale customers (which gained the acronym w-CBDC); and another on building a connection between the settlement of new securities in SDX and the central bank payment system. According to the project, the two experiments are “realistically possible”, and the transfers proved “legally robust”.
The project sees benefits and challenges in the adoption of tokens by central banks
The project report also points out the benefits and challenges of these experiments. Thus, a w-CBDC on a DLT platform accessible to financial intermediaries is beneficial because it paves the way for tokenization functionality. Among these functions is, for example, doing instant operations. However, the project study recognizes that there are new operational challenges and policy and governance issues for central banks with adopting these tokens.
On the other hand, connecting a DLT platform to the central bank’s payment system presents fewer challenges, but it does not bring all the full integration potential benefits.
Next phase will analyze technical issues
The next step of the project is seeking to better understand the technical issues and the implications in policies, for the integration of a w-CBDC into the existing financial system. “Moving forward with this work is neither a sign nor a commitment by the SNB to issue a w-CBDC”, points out the document.
But the discussion is critical because, as the document points out, “one of the fundamental purposes of central banks is to provide a safe and liquid settlement asset”. Central banks guarantee factors such as security, efficiency, and neutrality to operations. Thus, central banks have been experimenting with new technologies to maintain their role if the architecture of the financial system changes.