The Swiss National Bank (SNB) has joined the growing list of banking regulators probing the prospects of a central bank digital currency (CBDC) after confirming its intention to begin a pilot program.
SNB Chairman Thomas Jordan revealed to attendees of the Point Zero Forum in Zurich that the central bank will be upping the ante for CBDCs with an experiment on a wholesale CBDC over a retail iteration, although he hints at further exploration.
“This is not just an experiment, it will be real money equivalent to bank reserves, and the objective is to test real transactions with market participants,” said Jordan. “We do not exclude that we will never introduce retail CBDCs, but nevertheless, we are a little prudent at the moment.”
Switzerland is currently monitoring the progress of the European Central Bank’s (ECB) digital euro pilot program that may influence the direction of its retail CBDC.
Switzerland’s new CBDC pilot will be hosted on SIX Digital Exchange, one of the earliest platforms to receive operational licensing from Swiss regulators. Pundits claim that the decision to rely on SIX Digital Exchange makes it “the first time there has been wholesale CBDC settlements on regulated financial markets infrastructure anywhere in the world.”
However, a careful look at the technical details suggests that the pilot will rely on commercial bank money rather than a CBDC in its strictest sense.
“It is technically commercial bank money, and that comes with a balance sheet charge,” remarked one financial expert.
Central banks have been scrambling to get in on the CBDC wave following concerns over dwindling cash usage, a problem intensified by COVID-19 restrictions. Despite throwing its weight behind CBDCs, the Swiss central bank believes cash-based transactions will be integral and will continue its support unfazed by financial innovations.
Switzerland embraces blockchain with open arms
The Swiss banking industry has been experimenting with blockchain technology, spurred by the government’s implementation of a blockchain legal framework. The framework provided a new category for blockchain trading via the Financial Market Infrastructure Act.
In May, the Swiss Banking Association (SBA) submitted a white paper containing the technical details for deposit tokens (DT) relying on a blockchain. The deposit token aims to improve financial interoperability while finding use cases in micro and corporate payments.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Blockchain provides perfect foundation for CBDC
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