It is still “premature” to determine whether monetary policy operations should be conducted on DLT-based infrastructure, says the Swiss National Bank (SNB). Based on the findings of a trial it conducted earlier this year, the bank concludes that such infrastructures currently present heavy operational hurdles and require significant investment for success.
As a part of Phase III of Project Helvetia, an initiative to explore the settlement of tokenised assets in central bank money, SNB ran a trial between 1 December 2023 and 30 June 2024 during which it successfully issued CHF 64 million in digital SNB bills on SIX Digital Exchange (SDX), settled in wholesale central bank digital currency (wCBDC). With the issuance, the bank made its mark as the world’s first central bank to conduct a DLT-based live monetary policy operation on a regulated infrastructure. It recently published a report sharing findings from the trial.
Hurdles to jump
Although SNB acknowledges that “implementing monetary policy on a DLT-based infrastructure is feasible and effective”, it identifies a number of challenges, all to do with operations.
The trial necessitated that SNB acted as issuer, issuer agent, and paying agent. Although taking on all three roles allowed the bank to “gain valuable insights into pre- and post-trading operations on a DLT-based infrastructure”, it also required SNB to take on processes that would be outsourced to the CSD in a conventional issuance.
Cash management presented another hurdle. The tokenisation process required wCBDC to be exchanged with Swiss Interbank Clearing (SIC) balances before it could be used to settle digital SNB bills. This contrasts with conventional SNB bills, where basic cash management would suffice because reserves in the form of SIC balances can be paid in the SIC system.
More work needed
What was not fully explored during the trial was the automation of post-trade activities. SNB expects that should digital SNB bills be issued on a regular basis, these processes will have to be established. Integrated trading and settlement to allow for straight-through processing (STP), for example, would become “essential”.
The report concludes that DLT-based market infrastructures “remain niches for the time being” with limited traded volumes. Considering the “significant investment” required, ramping up such operations “stands in contrast to a lean monetary policy operational framework”. The question of whether to adopt such infrastructures is therefore premature.
