Thomas Jordan, the Chairman of the Governing Board at the Swiss National Bank (SNB), recently spoke about the bank’s exploration of the tokenization of financial assets and alternative settlement methods to wholesale CBDC during an event in Basel.
Jordan discussed the ongoing live pilots under Project Helvetia III, initiated in December 2023. This project allows participating banks to utilize Swiss franc wholesale CBDCs for settling transactions with tokenized bonds on the SIX Digital Exchange (SDX).
Highlighting the importance of these settlements, Jordan noted, “Settlement in central bank money is vital for eliminating credit risk and minimizing liquidity risk, which supports financial stability. It also reinforces the central bank money’s role as the monetary system’s anchor.”
He elaborated on the pilot’s mechanism that makes tokenized central bank money accessible on a third-party platform, which helps break down barriers within the currently segmented financial market infrastructures. However, Jordan acknowledged that this approach introduces its own set of challenges, particularly in terms of governance and the potential fragmentation of central bank money.
Expanding on the alternatives to wholesale CBDC, Jordan outlined two other settlement methods the SNB is testing. “The first involves linking the tokenized asset platform to the Swiss RTGS system. The second uses privately issued token money on the tokenized asset platform, which is bankruptcy-protected and fully backed by sight deposits at the SNB,” he explained.
The RTGS-based approach addresses the challenges of governance and fragmentation by continuing to use the traditional method of siloed operations and message synchronization. On the other hand, the private token approach allows for an integrated settlement system where both money and assets reside on the same platform, addressing governance issues but not the fragmentation concern.
Jordan emphasized the need for a thorough assessment of these approaches to weigh their benefits against the potential risks.
