BIS, Swiss National Bank partner on digital currency pilot testing

October 26, 2020.
Swiss francs. (Photo by Claudio Schwarz on Unsplash)

Swiss francs. (Photo by Claudio Schwarz on Unsplash)

An international financial institution has teamed up with Switzerland’s central bank to roll out the country’s first early-stage central bank digital currency for pilot testing by the end of 2020.

Benoit Coeuré, head of the Innovation Hub and a member of the bank’s executive committee, told the Bund Summit in Shanghai on Sunday that the BIS will work with the on a proof of concept. The project will build on an earlier commitment that any new currency will compliment, not replace, existing money, the official said.

In his address, Coeuré noted that a CBDC arms race is taking place among global central banks, with China leading the back, but emphasized the importance of bilateral cooperation to progress the new technology.

“Looking ahead, we plan to build on central banks’ experiences with cross-border users of CBDC, including between the Hong Kong Monetary Authority, Bank of Thailand, the Monetary Authority of Singapore and the Swiss National Bank,” Coeuré said. 

Central bank digital currency “will not usher in an era of prosperity or solve a raft of societal issues; that’s beyond the scope of any currency,” he added. “But CBDCs might be a way of achieving a more inclusive, accessible, safe and convenient form of money.”

Coeuré did not elaborate on the design details of the bank’s early model, although he said it will be designed after principles for CBDCs it jointly set out this year with central banks around the world, including interoperability with existing banking products.

Central banks around the world have taken a growing interest in CBDCs this year as the COVID-19 pandemic draws touchless payment options, real-time bank transfers and cross-border payments to the fore.

China took an early lead over other nations as it accelerated the launch of its inaugural digital yuan. The country launched a pilot test of the digital yuan in mid-August, targeting major cities such as Beijing. Coeuré said the program has garnered “millions’ of participants through a lottery.

Earlier this month, the launched a public consultation period for its prospective CBDC issue in a bid to catch up to China. Others, such as the Reserve Bank of Australia, have opted not to pursue a CBDC, citing strong demand for the cash it issues currently.

The Basel, Switzerland-based BIS earlier this month met with central banks from the U.S. and Europe, which are stakeholders in the organization, to discuss ongoing progress on CBDCs, Coeuré said. 

At that meeting, about 80% of 66 central banks indicated that they have begun conceptualizing and researching a potential CBDC issue, while 40% said they are currently working on a proof-of-concept design, the official said.

In a 26-page report that emerged from the meeting, the BIS laid out potential risks and design routes for central banks exploring an issue of their own, including potential risks to the national or international financial system.

If deployed “astutely,” CBDCs can help stabilize the “heart of our financial systems” while allowing transactions to be processed in a new way, like a tokenized system that allows for anonymous peer-to-peer transfers, Coeuré said.

“It’s more than just another way to pay,” he also said. “It could be the evolutionary foundation for new publicly accessible platforms to encourage diverse ecosystems of banks and fintechs, avoiding the winner-take-all networks that we’ve seen emerging in our digital lives and making sure that innovation benefits the many, not just the few.” 

--Additional reporting by Minyoung Park and Patrick Hoff