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Switzerland tests digital currency payments with top investment banks

Switzerland tests digital currency payments with top investment banks
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General view of the Swiss National Bank (SNB) building in Zurich, Switzerland on December 16, 2021. REUTERS/Arnd Wiegmann

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ZURICH (Reuters) – The Swiss central bank has successfully used digital currency to settle transactions involving five commercial banks, the Swiss central bank said on Thursday, in the latest trial of the technology in wholesale markets.

The experiment, called Project Helvetia, could bring the introduction of central bank digital currencies a step closer to Switzerland, which has conducted some of the most advanced central bank digital currency (CBDC) experiments in Europe.

Central banks around the world have stepped up work on central bank currencies, in part to make existing payment systems more efficient and to meet the challenge of cryptocurrencies, with research focused on versions for both wholesale or retail use.

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Under Helvetia, named after the symbol of Switzerland, the Swiss National Bank integrated central bank digital currencies into payment systems and used them to simulate transactions in an experiment that included UBS (UBSG.S), Credit Suisse (CSGN.S) Goldman Sachs (GS.N) ) Citigroup (CN) and Hypothekarbank Lenzburg.

The scheme showed that it was possible to carry out payments on the spot, which ranged in size from 100,000 to 5 million Swiss francs ($109,469 to $5.47 million), eliminating counterparty risk.

“We have shown that innovation can be harnessed to preserve the best elements of the existing financial system, including settlement in central bank money, while also unlocking new benefits,” said Benoit Courier, head of innovation for the Bank for International Settlements (BIS). Hub who also participated in the experiment.

The project, which took place over three days at the end of 2021, also involved the operator of the Swiss Stock Exchange SIX, the main provider of financial infrastructure services in Switzerland.

It included the issuance and redemption of digital currencies for wholesale digital currencies as well as their use for payments and settlement of securities purchases in Switzerland as well as cross-border transactions.

This came on the heels of previous experiments conducted by the Swiss Central Bank, BIS and SIX in the use of digital currencies. Read more

While retail central bank digital currencies will be used by households and businesses for daily transactions, wholesale issuances can be used to make large-scale payments between banks or other entities that have central bank accounts.

Proponents say wholesale central bank digital currencies could make the settlement of securities deals — which can take days, with multiple parties involved — more efficient.

CBDCs can be programmed with instructions to provide security instantly when digital cash is received.

While central banks in Hong Kong, Thailand and the United Arab Emirates, as well as Singapore, have looked at using central bank digital currencies for wholesale payments across borders, few have studied in detail how central bank digital currency integrates with commercial lenders.

The group participating in Helvetia will now evaluate the results before deciding on the next steps.

(dollar = 0.9135 Swiss francs)

(This story has been reworked to remove the repetition of the third paragraph below in the story)

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(Covering) By John Revell in Zurich and Tom Wilson in London Editing by Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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