French central bank and Swiss central bank open digital currency cross-border payment experiment

The cross-border journey of digital currencies seems to be becoming a reality.

French central bank and Swiss central bank open digital currency cross-border payment experiment

On June 10, local time, the Bank of France (Bank of France) and the Swiss Central Bank (Swiss National Bank) said they will conduct a trial of wholesale digital currency (wCBDC) cross-border settlement together with the private sector led by Accenture. The private sector includes: United Bank of Switzerland (UBS), Credit Suisse (Credit Suisse), the National Bank of France (Natixis), Swiss stock exchange operator SIX Digital Exchange, financial technology company R3 and the Bank for International Settlements Innovation Hub (BIS Innovation Hub). This joint experiment between the Swiss central bank and the Bank of France is the first European exploration of cross-border central bank digital currency payments, with a primary focus on the interbank wholesale lending market rather than daily public transactions. The Bank of France said the project is an exploratory experiment and does not mean that the two countries will officially roll out their official digital currencies on a large scale.

The experiment is called the Jura project because the Jura mountain range is the dividing line between Switzerland and France. The experiment will explore cross-border settlement through two wCBDC and a French digital financial instrument on a distributed ledger technology (DLT) platform, and will also exchange wholesale CBDC in euros for wholesale CBDC in Swiss francs through a payment-to-payment settlement mechanism. the above transactions will be settled between banks based in France and Switzerland, respectively. This means that payments will be almost instantaneous and must be digitally approved by the central banks of both countries before they can take effect.

In response, Sylvie Goulard, Deputy Governor of the Bank of France, indicated that the Eurosystem is innovating and adapting its actions to the strong trend of digitalization of payments. The Bank of France is convinced that wCBDC can significantly improve security and efficiency in financial transactions.

“It is crucial for central banks to stay at the forefront of technology”, stressed Andréa M Maechler, member of the Governing Board of the Bank of Switzerland, “as part of the Helvetia project, the Bank of Switzerland is also exploring the settlement of wCBDC tokenized assets. We look forward to extending this analysis to a cross-border context by participating in this exciting initiative.”

The Helvetia project was completed on December 3, 2020 local time. A conceptual experiment to integrate tokenized digital assets with central bank currencies for the Swiss Central Department of the Bank for International Settlements Innovation Hub (BISIH), the Swiss Central Bank (SNB) and the financial infrastructure operator SIX Digital Exchange (SIX).

By issuing a wholesale digital currency on a distributed digital asset platform and connecting the digital asset platform to existing wholesale payment systems and connecting the DLT platform to existing payment systems (PoC2) in near real-time, the Helvetia project explores the technical and legal feasibility of transferring digital assets and how central bank funding for wholesale settlements will be adapted.

Benoît Cœuré, head of the BIS Innovation Center, said the G20 has made strengthening cross-border payments a priority, while developing a roadmap to coordinate efforts. “The experiment aims to explore how wCBDC can further enhance cross-border payments by improving the speed, efficiency and transparency of cross-border use cases, and this experiment also effectively complements other ongoing BIS experiments on digital currencies.”

Coincidentally, on the same day, the Basel Committee under the Bank for International Settlements, known as the “central bank of central banks,” issued a proposal to set the risk weight for bitcoin at 1250%. The proposal will be submitted by September 10, 2021.

Under this proposal, crypto assets are divided into two broad categories, those eligible for treatment under the existing Basel framework, such as traditional assets that have been tokenized and stablecoins, and other crypto assets such as bitcoin, with the former requiring only minor adjustments, while the latter would need to be treated with a new conservative prudence.

“While banks’ current exposure to crypto assets is limited,” the proposal says, “the continued growth and innovation in crypto assets and related services, coupled with the rising interest of some banks, may all increase concerns about global financial stability and pose, in the absence of a specific prudential approach systemic risk.”

However, the Basel Committee added that central bank digital currencies are not part of the above discussion.

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