Swiss National Bank (SNB) CEO Thomas Jordan noted that the bank is studying the best ways to tokenize financial assets. Speaking at an event in Basel on Monday, Jordan noted that the Swiss National Bank is exploring alternative options for its wholesale CBDC.
Outlining the advantages and disadvantages of a wholesale CBDC, Jordan said the SNB is running live pilot programs under Project Helvetia III. The project first launched in December 2023. In the project, participating banks can use the Swiss franc wholesale CBDC to settle tokenized bond transactions on the SIX Digital Exchange (SDX).
“Settlement in central bank money is key for two reasons,” President Jordan noted in his remarks. “First, it eliminates credit risk and minimizes liquidity risk in settlement, thus contributing to financial stability. Second, it strengthens the role of central bank money as an anchor of the monetary system.”
He also explained how the pilot makes the central bank’s tokenized money available on a third-party platform. It eliminates barriers in the current isolated financial market infrastructure, Jordan added.
“This approach aims to raise awareness of the benefits of tokenization, but it also creates challenges.” Jordan identified central bank money management and fragmentation as two of the CBDC’s wholesale challenges.
Jordan extols two alternatives to wholesale CBDC
Chairman Jordan stressed that the Swiss National Bank is also testing two other settlement approaches for wholesale CBDC.
“The first alternative approach involves linking the tokenized asset platform to the Swiss RTGS system,” he said. “The second approach uses private money tokens, which are issued on the tokenized asset platform and which are protected from insolvency and fully backed by demand deposits at the SNB.”
The real-time gross settlement(RTGS) approach addresses both the governance and fragmentation challenges of central bank money. However, it also makes use of the old way of siloing operations and synchronization via messages, he added.
Second, the private token “enables an integrated approach to settlement where money and assets will be stored on the same platform.” Jordan added that this approach will solve the management problem, but not the fragmentation problem.
However, he noted that both approaches need to be carefully evaluated to examine the benefits and risks associated with them.
