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

On June 10, local time, the Bank of France and the Swiss National Bank said they would work with the private sector led by Accenture to experiment with cross-border settlement of wholesale digital currency (wCBDC). The private sector includes: UBS, Credit Suisse, Natixis, Swiss Stock Exchange operator SIX Digital Exchange, fintech company R3 and BIS Innovation Hub. This joint experiment between the Swiss National Bank and the Bank of France is the first exploration of cross-border central bank digital currency payments in Europe, focusing mainly on the interbank wholesale loan market rather than daily public transactions. The Bank of France said that this 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 Mountains are the dividing line between Switzerland and France. The experiment will explore cross-border settlements through two wCBDCs and a French digital financial instrument on a distributed ledger technology (DLT) platform, and will also exchange the euro wholesale CBDC for the Swiss franc wholesale CBDC through a payment-to-payment settlement mechanism. The above transactions will be settled between banks headquartered in France and Switzerland respectively. This means that payments will be almost instant and must be approved digitally by the central banks of the two countries before they can take effect.

In this regard, Sylvie Goulard, deputy governor of the Bank of France, stated that the Eurosystem is innovating and adjusting its actions to adapt to the strong trend of digital 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 SNB Board of Governors. “As part of the Helvetia project, the SNB is also exploring the issue of tokenized asset settlement in a wCBDC. We look forward to extending this analysis to the cross-border context by participating in this exciting initiative.”

The Helvetia project was completed on December 3, 2020, local time. It is a conceptual experiment for integrating tokenized digital assets and central bank currencies jointly conducted by the Swiss Center of the Bank for International Settlements Innovation Center (BISIH), the Swiss National Bank (SNB) and the financial infrastructure operator SIX Digital Exchange (SIX).

By issuing 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 in near real time (PoC2), the Helvetia project explores the technical and legal feasibility of transferring digital assets and how central banks’ approach to funding wholesale settlements will need to be adjusted.

Benoît Cœuré, director of the BIS Innovation Center, said that the G20 has made strengthening cross-border payments a priority and is developing a roadmap to coordinate efforts. "This experiment aims to explore how wCBDC can improve the speed, efficiency and transparency of cross-border use cases, thereby further improving cross-border payments. This experiment also effectively complements other ongoing digital currency experiments at the Bank for International Settlements."

As luck would have it, on the same day, the Basel Committee of the Bank for International Settlements, known as the “central bank of central banks”, issued a proposal to set the risk weight of Bitcoin at 1250%. The proposal will be submitted before September 10, 2021.

Under this proposal, crypto assets are divided into two categories: one is crypto assets that are eligible for treatment under the existing Basel framework, such as tokenized traditional assets and stablecoins; the other is other crypto assets such as Bitcoin. The former only needs minor adjustments, while the latter needs to be treated with a new conservative and prudent attitude.

“While banks’ current exposure to crypto assets is limited,” the proposal states, “the continued growth and innovation of crypto assets and related services, coupled with growing interest on the part of some banks, could heighten concerns about global financial stability and pose systemic risks in the absence of a specific prudential approach.”

However, the Basel Committee added that central bank digital currencies were not part of the discussions.