The Swiss National Bank and the Bank for International Settlements have set up an innovation hub in Switzerland to investigate ways to implement blockchain technology in the current central bank system. A key focus is the development of a central bank digital currency.
The Swiss National Bank (SNB), which is Switzerland’s central bank, signed an agreement with the Bank for International Settlements (BIS) to cooperate on the development of a central bank digital currency.
Both institutions will together set up an innovation hub in Basel to investigate “key technology trends” in the central banking sector. The agreement was signed on 8th October and the Innovation Hub will focus on two research projects.
Central bank digital currency could settle tokenized assets between financial institutions
The first research project will examine the integration of a blockchain-based central bank digital currency to settle tokenized assets between financial institutions. This project will be carried out by SNB and SIX Group in the form of a proof of concept.
Six will provide its decentralized platform SDX to explore ways how a central bank digital currency could interact with a blockchain trading platform. SDX could for example connect to the existing Swiss Interbank Clearing System (SIC), which processes Swiss franc payments between financial institutions in real-time. Connected to a blockchain-platform, SIC may also be used to process a central bank digital currency.
Another way would be to wholesale central bank digital currency on the SDX system, meaning the SNB would use the platform to issue digital Swiss franc tokens to financial market participants.
Thomas Zeeb, Head of Securities and Exchanges at SIX, says, “Our proof of concept on the subject of digital central bank money for financial market participants on DLT [distributed ledger technology] platforms will not only provide technical insights but will also send an important signal to all market participants to take steps to explore DLT technology and digital assets.”
Tracking and monitoring electronic markets
The second project will investigate how the central bank can effectively track and monitor electronic markets. As financial markets are getting increasingly automated, fragmented and technologically sophisticated, central banks need to leverage technology to keep up with private sector developments.
Blockchain technology can track securities and trading activities in a transparent and cost-effective way. Other countries, including neighboring Germany, are also investigating the possibilities of a blockchain-based register to track and monitor financial markets activities.
Thomas J. Jordan, Chairman of the Governing Board of the SNB, comments: “For some time now, the SNB has been closely following the digitalization of the financial sector and the technological innovations in the areas it manages. Cooperation at the BIS Innovation Hub Centre in Switzerland enables the SNB to further expand its competence in the area of financial markets and their infrastructures. We look forward to strengthening our cooperation with the BIS and other central banks in this space.”
Other hubs in Hong Kong and Singapore
In September, the BIS signed a similar agreement with the Hong Kong Monetary Authority (HKMA) to establish such a research hub in Hong Kong. The first hub was launched in June in Singapore, in cooperation with the Monetary Authority of Singapore.
The BIS’s role in the global financial system is to serve as a bank for central banks. Augustin Carstens, who heads the BIS, had in the past taken a positive stance towards blockchain and repeatedly said the BIS supported the efforts of the world’s central banks in creating digital versions of state currencies.