Wholesale CBDCs and Other Initiatives

Transcript

amazing insightful um um keynote which we heard and uh next we are going forward with a very special guest and um you know when we speak of web tree and we especially speak of banking here in Switzerland who else is more important than the Swiss National Bank itself so in the next uh Keynote you'll be hearing from the advisor of the Swiss National Bank uh from Robert Oak he will be speaking to you about the Swiss National bank's views on the utilization of the technology for banking wholesale cbdcs and other initiatives please put your

hands together I'm very pleasured to welcome you on stage Robert thank you thank you so let me thank uh the crypto Val Association um for inviting me to this event to this beautiful event um as mentioned before I'm a central Banker so um I hope I can bring you some new New Perspectives what central banks are doing in the blockchain space and why actually we are we are involved in this in this area of course um any views expressed today here are are only mine so they do not necessarily uh reflect those of the of the Swiss National Bank

so with that out of the way let's let's start with the presentation and I think one of the reasons why central banks are involved in looking at blockchain distributed Ledger technology is because tokenization of of assets is is is taking shape it's gaining momentum so this is an estimate by McKinsey which say which says that in 5 years the overall market capitalization of tokenized assets will be around $1.9 trillion us doar will this happen we don't know um but Switzerland is one of the leading centers in the adoption of tokenized Assets in the regulated sphere so for central banks one of the

important questions that we ask ourselves is how can these transactions in tokenized assets be settled in central bank money and this is important for two reasons the first reason is that settling in central bank money removes for you the liquidity and credit risk because there's nothing safer than S using central bank money and also it's supposed the role of central banks as the anchor of the financial system now what is central bank money after all and why is it so important so let me show you this this little picture that we have created a few years ago and the Central Bank shown here at the bottom in dark blue issues

money in the in in the form of cash and side deposits cash everyone can hold but side deposits only regulated financial institutions are able to hold so this is the Blue Area shown here in in the half circle uh and the relationship between the Swiss National Bank or central banks and the financial institutions now financial institutions they can issue Commercial Bank money and Commercial Bank money is used when you do everyday payment through your bank account so you are using not um uh central bank money but you are using Commercial Bank money which is created by by financial institutions and importantly the financial institutions are the com uh

are the are the connecting factor between the blue area where the central banks are active and and the green area which is um settling payments across the whole economy now Innovations can happen in both areas in the blue area and in the green area the the things I have heard today I think mainly concern the green area but today I will talk about the blue area and I will talk about two projects so one project is is Project helva or the pilot helvia where we are a central bank issuing wholesale cbdcs on Swiss digital exchange which is a which is a private um platform where assets

are tokenized and we are actually offering the opportunities to settle the transactions of these Assets in central bank money and the second project I will be talking about is project promisa uh it's a little bit different use case but I think nevertheless fascinating and and also nicely connected to helvia so first thing I want to show is how do we connect the old world with the new world what you see in front of you are two boxes on the left side is the Swiss interbank clearing system this is the current payment system where all the interbank payments are settled so just just to give you a perspective in the six system every day transactions worth more than 200 billion swis Franks are

settled so any financial institution which is in the six system and is also member of the sdx platform can issue wholesale cbdcs how do they do it they just transfer money from their Accounts at usnb to a technic technical account at the SNB and the SNB operates a note and the sdx platform they issue wholesale cbdcs and transfer that on the note of the bank so that they can use it immediately to settle transactions here in this example a DVP transaction uh with bank two or they exchange tokenized assets for wholesale cbdcs now the helvia pilot is running um the goal of the Swiss National Bank is

to support private sector Innovations we also want to provide a certain planning certainty for the financial institutions so we are running the pilot at least for two years and also we want to leverage and make sure that there's interoperability between the old world and the new tokenized world uh we have seen until now eight use cases so eight issuances of digital bonds with a total value of more than 1 billion Swiss Franks um what is interesting um the the issuance of the bonds um city of Lugano is one of the important issuers so thanks a lot for for being part of that and also we had the cant of ble zich

sangal and also the World Bank has issued digital Bonds on the sdx platform they've also conducted monetary policy transactions using SM SMB bills but we are also looking into expanding the use cases in the future in terms of the participants you see there are eight Banks currently uh being members of of the of the platform and using also wholesale cbdcs uh the bail cab the B Cal bank has just recently sh joined this week and tomorrow they will actually settle uh a new transaction uh using wholesale cbdcs um now let me talk about the second project project

promisa um it is a project by the bis Innovation Hub together with the World Bank uh the Swiss National Bank and the IMF is acting here as Observer um the main goal of this project is to make the funding model of the World Bank and other development Banks more efficient so why is it what is the issue today one of the two most important sources of funding for for development banks are the member contributions of of countries so countries are paying the World Bank every every three years or every year a certain amount and based and this is the equity of the of the bank and based on

that they are they are issuing also bonds to increase their funding just to give you a perspective the World Bank um by using these two funding channels is um receiving 100 billion US dollar every three years now the borrowing aspect is already quite efficient um they also the World Bank is also looking at issuing digital bonds as I have said in project helvia and in other other uh blockchain um platforms but the equity the member payments is very inefficient so just let you let me give you um some perspectives of how that works so the payments are

made either through cash or by using promisory notes and in the case of world Banks most of the countries are using promisory notes these are paper-based instruments and this promisory notes are stored in the vaults of more than 100 central banks across the world any payment that involves the physical handling of these vaults and need to be these promisory notes need to be taken out of the vaults soone needs to write on the back that the payment has happened so so you have a lot of inefficiencies and also several parties within the central bank within the Ministry of Finance and at the World Bank I involved for each of the payments so this is really really inefficient and

what we have done in the project is uh building a proof of concept where we are moving from the paper straight into distributed Ledger Technologies now on the right side you see the POC the proof of concept or high level design that we have built so each party that is involved in a transaction operates a note and they also have a front end where they see the information and where can do certain actions and so you have the Ministry of Finance which is the promiser you have the central bank which is a custodian and the payment agent for the Ministry of Finance and you also have the World Bank which is receiving the money now um we have not only Built This

for the SNB for the Swiss Ministry of Finance and for the World Bank but also we have tested it across the world so we had several Nations being part of the testing we have also other Development Bank Banks the Asian development bank which is was also part of the testing and uh I think the result was was very convincing we could show that the efficiency gains are very high um but for that let me show you uh one of the feedbacks we have received from a central Banker so to be honest my heart is beating higher right now um because I see a huge Improvement regarding the really really complicated reconciliation that it simply becomes obsolete I think if Central Bank is talking about the

hearts beating high right now that I think we are we we we thought we are really onto something here um so let me close with with um one remark and conclude I think technological innovations such as tokenization may help to make the financial system more efficient and if the tokenization of assets becomes mainstream settlement in cental bank money is very important and um even though currently the tokenization is a niche phenomena compared to the size of the of the traditional Financial Market central banks are already involved because because they need to be ahead of the

game and be ready if if if it this becomes a reality thank you very much [Applause]