Cantons of Basel, Zurich settle digital bonds with wholesale CBDCs

The cities of Basel and Zurich became the first metropolises in Switzerland to settle a tokenized bond using a wholesale central bank digital currency (CBDC) issued by the Swiss National Bank (SNB).

The settlement occurred on December 1 as part of Project Helvetia Phase III, first announced by the SNB in November. The initiative explores real-world use cases of a wholesale CBDC for commercial banks and is designed to run until the middle of 2024.

The Basler Kantonalbank acted as the issuer agent for Basel’s CHF105 million ($120.14 million) digital bond, while Zürcher Kantonalbank was entrusted as the agent for Zurich’s CHF100 million ($113 million) tokenized bond.

The issuances by Basel and Zurich are the first in a long line of projects lined up by the SNB and Project Helvetia Phase III participants. Both digital bonds use the SIX Digital Exchange
(SDX) for listing and are tradable in both SDX and the SIX Swiss Exchange. The recent digital bond settlement using blockchain technology is the first time the Swiss banking regulator has issued wholesale CBDC at par with Swiss francs in real-world scenarios.

“A strong collaboration amongst participants of the Swiss financial center led to the successful start of the Helvetia III pilot,” said David Newns, Head of SIX Digital Exchange.

“As the most ambitious wCBDC project in the history of capital markets, the settlement of the first securities transactions in wCBDC in a developed economy on regulated blockchain
-based infrastructure in a production environment represents a major milestone for the entire industry on the road of adoption of a tokenized, DLT based financial markets infrastructure,” said Newns.

SDX says it will continue to leverage its deep experience with digital bonds after receiving its operation license from the Swiss Financial Market Supervisory Authority (FINMA) to operate as a central security depository (CSD) and a stock exchange.

SDX has received FINMA’s approval to issue, trade, settle, and hold digital assets from its customers as it continues to be at the forefront of financial assets tokenization in Switzerland.

Digital bonds and CBDCs

Amid the rising interest in digital bonds by financial regulators and key industry stakeholders, experts are pushing for CBDCs to be deployed in settlements to prevent the “cryptoization” of financial systems.

Banque de France Deputy Governor Denis Beau disclosed in a speech that global central banks should develop their CBDCs with tokenization features or risk playing second place to privately issued stablecoins.

“If we do not adapt central bank money to this evolving landscape, meaning if central bank money cannot be used to settle tokenised transactions, industry participants may turn to alternative settlement assets, such as stablecoins.”

Central banks from the United Kingdom, the United Arab Emirates, and Brazil are throwing their weight behind tokenization studies with CBDCs with varying degrees of success.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Building CBDC systems on Bitcoin