Tim Grant, Head of Business, SIX Digital Exchange


Over the past year, Central Bank Digital Currencies (CBDC) have become an increasingly hot topic for capital markets, with many regional digital currencies popping up across the world. Although progressing at different speeds, Iceland, Russia, and Singapore have all made their mark developing digital assets within the last few years.

More than any, Switzerland has always held a leadership role in the development and management of digital assets, and recently it evoked a new law that lets tokenised securities be traded on a blockchain with the same regulations as traditional assets. This has aided in cementing Switzerland’s role as one of the most advanced countries for digital assets and created room for even further development. However, there is still room for more development with CBDCs globally, and we can expect to see this transpire over the next few years.


The complex role of wholesale CBDCs

The widespread use of central bank money for large and critical settlements is crucial to the functioning of the global financial system. Recent digital advancements – namely distributed ledger technology (DLT) – have helped to speed up this process and could potentially change how financial market transactions are carried out. We have seen central banks experiment with this new technology to ensure that even if the architecture of the financial system changes, it can still offer a settlement in central bank money such as through a wholesale CBDC. For this reason, wholesale CBDCs play a definitive role for financial institutions and investors, and enable instant settlement or delivery versus payment for central bank money, leading to a more efficient end-to-end process for settlements.

A DLT or blockchain digital asset platform is also needed to issue wholesale CBDCs, increasing its importance. Another key benefit of DLT and blockchain is the ability to achieve near instant settlement of trades. This completely removes the risk of payment defaults so that the services of a central counterparty are no longer needed. Furthermore, the immutability of a blockchain guarantees transactions are credible and provides higher liquidity to digital assets. However, issuing wholesale CBDCs onto a digital asset platform is not always a straightforward process.

International standards mean financial market infrastructure must settle central bank money wherever it is practical and available, and this isn’t an option that is always accessible. Furthermore, the lack of a truly institutional regulated exchange has stunted the growth for CBDC issuance as investors don’t have an option they can completely trust.

With regulations around digital assets still being uncertain, members of the industry will be seeking out a deeper understanding of the policy implications and practical complexities of issuing a wholesale CBDC over the next few years. Integration into core banking systems as well as exploring the function of a wholesale CBDC across borders with a diverse set of participants are also concerns for CBDC issuance. To challenge these concerns and build up this lack of trust, we can expect to see advancements in regulations develop as quickly as digital assets.

Switzerland’s new law – the DLT Act – that allows tokenised securities to be traded on a blockchain with the same legal standing as traditional assets, was adapted to recognise tokenised securities as a new class of asset. Now, its legal ownership rights are automatically transferred via the blockchain to each new investor. With previous rules being so uncertain on rights, the legal certainty is now clear and once the central bank money is transferred, the new owner will be guaranteed that those rights are theirs. Many more of these changes are likely to be adopted to settle any concerns around CBDC issuance.


The future of tokenised assets

Digital innovation will have a major impact on the future of the financial system, and we can expect to see the gap between traditional exchanges and tokenised assets bridge. For financial markets in general, digitisation has significantly enhanced the speed of trading, clearing and settlements. For instance, DLT is helping to create transformational change for how financial market transactions are carried out, and the tokenisation of assets could create new financing pathways.

We are likely to see more collaborations such as Project Helvetia which is an experiment between SIX, Swiss National Bank and the Bank for International Settlements, as change increases worldwide. The project demonstrates the functional feasibility of integrating tokenised assets and central bank money, through a wholesale CBDC. Furthermore, overcoming concerns of how practical issuing a wholesale CBDC is, policy challenges and technical obstacles will involve not only collaboration, but also the widespread introduction of more concrete regulations. Overall, it will be very important to stay informed and adapt with the changes to come.



Explore more