In June the Swiss National Bank (SNB) extended its wholesale central bank digital currency (wCBDC) pilot by two years. That major news overshadowed another groundbreaking first: the central bank conducted DLT-based monetary policy operations by issuing CHF 64 million in digital SNB Bills on the SIX Digital Exchange’s DLT. They were redeemed seven days later.
This week the central bank shared findings about the trial, which formed part of Project Helvetia III, its wholesale CBDC initiative. It concluded that this approach is feasible and effective.
However, most of the other findings amounted to digital SNB Bills being a new process that would therefore require additional work. The SNB views DLT as still being niche, with relatively low volumes.
“Hence, the question of whether to conduct monetary policy operations on a DLT-based infrastructure is premature. Ramping up such operations would also entail significant investment for the SNB, its counterparties as well as infrastructure providers,” the paper states.
How it worked
The central bank would usually issue SNB Bills to mop up liquidity in the banking sector. In this case, the bills were a bit shorter than usual – seven days rather than the usual 28 days minimum. It involved a smaller than normal group of pilot banks and the digital SNB Bills weren’t auctioned on the usual CO:RE repo platform.
Two days after the Bill auction, the digital SNB Bills were issued in much the same way as other digital bonds that have been issued on SDX. Plus, the banks converted central bank reserves to the wCBDC on SDX. As soon as that happened the transfer of the wCBDC and the Bills happened atomically. On redemption, the Bills were returned to the central bank with the banks receiving wCBDC in an atomic settlement transaction. The SNB noted that the wCBDC represents central bank reserves in a different form, which makes it effective for monetary policy purposes.
Digital SNB Bill findings
Firstly, the SNB acted as issuer, issuer agent and paying agent. It found this improved transparency and reduced coordination efforts. However, it would usually delegate some of these tasks to the central securities depository (CSD).
Secondly, using a wCBDC required an extra step beyond basic cash management. Finally, automation was out of scope for the test but would be necessary to enable straight through processing.
Hence, the conclusion that the extra work is not currently justified given the progress of DLT adoption.
Meanwhile, the SNB and SDX are both participants in Project Agorá, the tokenized cross border payment trials organized by the BIS. It involves seven central banks and over 40 private institutions.
