The Swiss National Bank announced that it had successfully used digital currency to settle transactions involving five commercial banks.
Switzerland going CBDC
After Central Bank Digital Currencies have long been more popular among second-world countries, advanced economies are stepping up their digital currencies game.
A few weeks ago, Japan announced that its largest banks were working in cooperation with the Bank of Japan on a CBDC. Switzerland seems to be the next in line after the Swiss National Bank announced a successful trial of its Project Helvetia. Named after the symbol for Switzerland, the project integrates CBDCs into payment systems and uses them in simulated transactions that involve some of Switzerland’s biggest banks, such as UBS, Credit Suisse, Goldman Sachs, Citigroup, and Hypothekarbank Lenzburg.
Several payments were executed instantaneously, with transaction volumes ranging from 100,000 to 5 million Swiss francs ($150,000 to $7.5 million AUD). Swiss authorities were pleased with the successful trial, which showed that counter-party risk could be successfully eliminated with such a solution. Benoit Coeuré, head of the Bank for International Settlements (BIS) Innovation Hub, said that the trial had demonstrated that innovation could be harnessed to preserve the best elements of the current financial system, including settlement in central bank money, while also potentially unlocking new benefits.
SIX, Switzerland’s equivalent to the ASX, had participated in the experiment that had taken place over three days at the end of 2021. Besides issuance and redemption of wholesale CBDCs, it had focused on the settlement of securities purchases in Switzerland, as well as cross-border transactions.
Central banks stepping up their game
With cryptocurrencies at the receiving end of a heavy beatdown dished out by markets, central banks are making continuous progress on their CBDC experiments.
Proponents argue that CBDCs would be the better, more secure, and more reliable version of cryptocurrencies, as they could settle securities trades more efficiently than currently possible. Moreover, retail CBDCs could be used by households and businesses for everyday transactions, helping to fight back against tax avoidance and other cash-based nefarious activities. Banks would benefit by making large-scale payments with central bank accounts, further streamlining their accounting process.
However, CBDC opponents argue that digital currencies managed by central banks would be another blow to citizens’ privacy rights and could lead to increased control by financial authorities. Since CBDCs could be programmed flexibly to function depending on certain conditions, they do allow for a much greater degree of control than cash or even cryptocurrencies. Whether you think governments and financial authorities would yield this kind of power probably depends on your view of government and the government in question.
Considering the increasing rate of development in CBDCs, it does not seem a question of whether they will happen, but when that will be the case. Nigeria, for instance, has already launched a digital Naira, and it would take a brave person to bet against Western nations passing up this kind of technological opportunity. Whether you like it or not, the CBDC game is only beginning.