In collaboration with the Bank for International Settlements(BIS) and the SIX Stock Exchange, the Switzerland Central Bank has successfully conducted a pilot experimental run that utilized wholesale Swiss Central Bank Digital Currency (CBDC) to actuate inter-bank transactions.
The project was facilitated by five major financial institutions globally, Citi, UBS, Goldman Sachs, Hypothekarbank Lenzburg, and Credit Suisse.
The experimental run featured the utility of the wholesale CBDC for different interactions leveraging the already established local financial network as a mirror. The new framework experimented on transactions, credit issuance, funds disbursement, and others.
The experiment was scheduled to begin in 2020 and was executed in phases.
Phase one was initiated in 2020; it featured a test approach that presents two mechanisms for settling digitized assets in national fiat currency by rolling out wholesale CBDC on an encrypted platform. The already in-use payment framework is then pegged to a blockchain leveraged digital ledger jointly developed by the Swiss Central coalition.
Coined as Project Helvetia, the scheduled second phase was kickstarted months after the initial announcement in Q4. Project Helvetia detailed the operational integrity of the CBDC framework as it reacts to the different magnitude of stress in the form of congestion, settlement of interbank transactions, clashing monetary policies, and trans-border transaction according to a statement released by Swiss central.
How Project Helvetia Was Executed
Project Helvetia was executed utilizing the framework specially tailored for the test run by SIX, the central bank’s live tracking gross settlement framework, SIX’s core tech pegged for inter-banking between institutions.
The detailed execution leveraged effort from five other international institutional giants in the traditional finance sector. Citi, UBS, Goldman Sachs, Hypothekarbank Lenzburg, and Credit Suisse, the institutions that offered their expertise.
The test was conducted for six models, the banks and stock exchanges modeled the framework for wholesale CBDC utility for funds disbursement, funds redemption, delivery-payment interinstitutional purpose, funds transfer, booking-settlement pair transactions, and daily trade tracking and control, according to a joint report published on the Swiss Central online page.
Swiss Wholesale Deployment Success, A Purview Of Next Era Trend
The reported overall success of Swiss Wholesale CBDC deployment is a spark that will ignite the evolution of traditional financial frameworks globally.
The move pioneers a developmental frontier in wholesale CBDC infrastructural development as it expressly demonstrates the relevance and adaptability of blockchain technologies in the traditional banking and finance sector globally.
Switzerland’s success has highlighted the advantages of the utility of the digital assets class in facilitating inter-institutional network activities in the traditional finance sector; the arithmetic has been proven right; what naturally follows will be mass emulations and implementations globally.
Wholesale CBDCs And Retail CBDCs
Wholesale CBDCs are digital assets developed by national central banks for institutional use only. Wholesale CBDCs have a more strict security and regulations requirement than their retail counterparts related to the settlement of intrabank and interbank transfer and possibly cross-boundary transactions.
Retail CBDCs, on the other hand, are developed for the specific purpose of complete digitalization of a nation’s fiat currency and the possible implementation of possible decentralization in its financial sector. An example of such radical policy is the case of the Chinese digital yuan that was rolled out last year.
Though exploratory, Project Helvetia’s second phase has successfully demonstrated the possibility of a selective merger between the traditional finance sector and the decentralized finance sector (DeFi).