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In December 2020, the Swiss National Bank (SNB) issued an official press release regarding the completion of the first phase of its project under the cryptic name “Helvetia”. As it turns out, the latest SNB research is directly related to cryptocurrencies and blockchain technology. What were the main goals pursued by the Swiss financial market regulators? And who was included in the number of participants in the project?
What is Helvetia?
The number of financial market players actively using blockchain is growing rapidly. And regulators are simply forced to pay attention to the new trend. So the Swiss Central Bank approached the issue with all seriousness and conducted a detailed study of various aspects of the application of new technology in its business processes.
For this purpose, the Helvetia project was created. This is the name of the Swiss pilot program to study the possibility of creating its own digital currency (CBDC) in the country and assess the consequences of such a step for the market.
Recall that CBDC — central bank digital currency — it is a synthesis of a stablecoin and a national currency. The issuance and circulation of CDBC is regulated by central banks (as well as its traditional counterpart). At the same time, the state cryptocurrency operates within its own blockchain and is tied to a real monetary unit in a ratio of 1:1.
At the first stage, it was decided to start a study with the direct participation of the Innovation Center of the Bank for International Settlements and one of the largest Swiss operators in the financial services market, SIX. At the following stages, it is planned to expand the circle of participants and attract other financial institutions:
- national and commercial banks;
- payment systems.
Globally, Helvetia is divided into two phases:
- At the first stage, the technological capabilities and legal features of issuing a “wholesale” CBDC on the DLT platform (blockchain) are assessed;
“Wholesale” CBDC — it is a national cryptocurrency, the use of which is limited only to banks and financial institutions — so-called “wholesale” providers and consumers of financial services.
- Transfer of the existing traditional financial system to such a blockchain platform.
On the one hand, CBDCs have clear settlement advantages:
- high transaction speed;
- reduction of commission costs;
- accessibility – it is enough to have a smartphone with Internet access;
- impossibility of forgery.
But at the same time, the degree of their influence on the financial and political system of the state is still unclear. For this purpose, the first stage of the study was launched – identifying practical problems and possible consequences of calculations in CBDC.
It was necessary to find various options for building an ecosystem of state cryptocurrencies that would allow a compromise between the benefits and risks of use.
It is expected that the integration of the existing financial system with blockchain platforms will avoid many of the problems that are specific to CBDC. But, most likely, many of their advantages will also be lost.
As follows from the press release, the participants of the first stage considered its results quite successful. All the tasks set at this stage have been solved, namely: the issue of CBDC and the calculations in it have been confirmed as realistically feasible.
The next step will be to organize the practical integration of the existing payment system and the new decentralized securities settlement platform. Such a platform, called SDX, is planned to be launched by SIX in 2021.
“Regardless of what technologies are introduced into the financial markets, Switzerland has an obligation to maintain the security and integrity of its financial infrastructure. If blockchain can provide significant improvements in the settlement and trading of securities, then the Swiss National Bank should be ready to use it, ”said Andrea Mehler, head of the Swiss Central Bank.
Ready for any scenario
The participants of the Helvetia project openly and frankly admitted that the private sector plays a key role in the development of the financial aspects of the application of DLT technologies. Central banks are forced to play the role of catching up here: they have to allocate time and funds to study the impact of blockchain on the security and efficiency of financial markets.
Although the project confirmed the reality of the issuance and operation of the CBDC, this does not mean at all that the Swiss Central Bank is ready to introduce the e-franc in the near future.
Moreover, this does not mean that the SNB is ready to provide the Swiss e-franc for general use. So far, the crypto-franc is far from being a priority for the regulator due to the possible consequences of its introduction for the banking system. In addition, the Central Bank believes that the existing financial system works perfectly and without failures. However, SNB wants to be prepared for any scenario.
Modern life sets such a high pace that there is practically no time left for doubts and reflections. The examples of Russia, China, Venezuela, Sweden, Japan, Canada and many other countries are forcing other powerful players to focus significant efforts on the development of national digital currencies. Otherwise, the old financial system may simply not be able to compete with new technologies, which will not be slow to negatively affect the value of the traditional national currency.
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