Science

SNB and BdF to test central bank digital currencies between financial institutions

by John Revill and Marc Jones

ZURICH / LONDON (Reuters) – The Banque de France (BdF) and the Swiss National Bank (SNB) will test the first cross-border payments in Europe in digital currency from central banks, she said on Thursday, which will be a first for two of the main currencies in the world.

The experiment will only concern the interbank lending market, but it will be the first time that a digital euro and Swiss franc will be tested.

The banks UBS, Credit Suisse and Natixis are associated with the project, as are the Swiss stock exchange operator SIX Digital Exchange, the “fintech” company R3 and the innovation arm of the Bank for International Settlements (BIS).

The euro zone is thus adapting to a “strong trend” towards the digitization of payments, said Sylvie Goulard, deputy governor of the BdF.

This is a new milestone in central bank digital currency (MNBC) experimentation for BoF, which in April made payments on digital bonds issued by the European Investment Bank using the technology storage and transmission of information called “blockchain”.

“The Banque de France is convinced of the potential advantages of central bank digital currency for financial institutions (wholesale MNBC, editor’s note) to offer maximum security and efficiency in financial transactions,” explained Sylvie Goulard.

The collaboration between the BdF and the BNS has been baptized “Jura”, in reference to the mountain range that separates France from Switzerland.

It will allow a wholesale MNBC in euros to be exchanged for an MNBC of the same type in Swiss francs through a payment-for-payment mechanism. These transactions will be carried out between banks based in France and Switzerland.

With this technology, payments will be almost instantaneous but both central banks will have to approve them digitally before they can be made.

“ESSENTIAL” PROJECT

This is an “exploratory” project which is not intended to signal the forthcoming full and complete implementation of digital currencies, said the BdF and the SNB.

This test, which is due to take place over the next few months, is the last part of the “Helvetia” project launched last year by the SNB on wholesale MNBCs.

It comes after the decision of the central bank of China and that of the United Arab Emirates to join a cross-border digital currency project, called “m-bridge”, carried out in partnership with the innovation department of the BIS based in Hong Kong.

“It is essential that central banks remain at the forefront of technological developments,” said Andrea Maechler, member of the SNB’s senior management.

Wholesale MNBCs, which are generally limited to a small circle of users such as financial institutions with central bank accounts, are different from retail MNBCs, which are available to the general public.

They are popular with central banks because of their potential to make existing financial systems safer, faster and cheaper.

The SNB, on the other hand, has been skeptical of digital currencies such as Facebook’s Diem project, previously known as Libra, believing that their rise could undermine the effectiveness of its monetary policy.

(John Revill in Zurich and Marc Jones in London, with Leigh Thomas and Claude Chendjou in Paris, Blandine Hénault for the French version, edited by Marc Angrand)

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