Swiss Banks Collaborate to Introduce Blockchain-Based Deposit Token
In an effort to modernize the Swiss financial system and enhance its competitiveness in the digital era, leading Swiss banks, including PostFinance, UBS, and Sygnum, have come together to explore the feasibility of a digital Swiss franc. Spearheaded by the Swiss Bankers Association (SBVg), the initiative aims to revolutionize Switzerland’s financial landscape.
The project, called “Digitale Währungen” or “Digital Currencies,” has gained support from major Swiss banks, which have signed a memorandum of understanding (MoU) to conduct a Proof of Concept (PoC) for a digital Swiss franc deposit token. This deposit token is a blockchain-based payment method that mimics traditional deposits, empowering bank customers to engage in transactions on an innovative payment platform using distributed ledger technology (DLT) and smart contracts.
The initial focus of the Deposit Token PoC will be on two use cases: simple payments between participating banks and delivery versus payment transactions with escrow functions. If successful, the PoC could pave the way for the widespread adoption of a digital Swiss franc, offering numerous benefits such as faster and more cost-effective transactions, enhanced security, and the introduction of new financial products and services.
The MoU signed by the Swiss banks aims to address the need for coordination within the broader context of the Swiss Bankers Association’s work on digital currencies. Its primary objectives are to design, execute, and evaluate an initial Deposit Token PoC, as well as address any legal or operational challenges that may arise during the project. Additionally, the banks will assess the potential benefits and challenges of a nationwide rollout of a digital Swiss franc, taking into account various technical, legal, economic, risk, and operational factors. The Deposit Token PoC project is expected to be completed by 2025.
By piloting a blockchain-based system, PostFinance, UBS, and Sygnum are taking a more radical step compared to other Swiss banks that allow their customers to invest in cryptocurrencies like Bitcoin (BTC) and Ether (ETH). The focus is on utilizing the underlying technology or even building services directly on top of a public blockchain such as Ethereum. However, regulatory hurdles, such as determining rules for cross-border use and asset backing, need to be addressed. Opting for a public blockchain, as suggested in their whitepaper, would be truly revolutionary, as transactions on public blockchains are transparent to everyone.
In addition to the digital franc initiative, Swiss banks are actively involved in cryptocurrency trading. Zurich Cantonal Bank, also known as Zürcher Kantonalbank (ZKB), has recently joined other financial institutions in offering cryptocurrency trading services to its customers. ZKB customers can now trade Bitcoin and Ether around the clock through the ZKB eBanking or ZKB Mobile Banking platforms. Several Swiss cantonal banks, including Zuger Kantonalbank, St. Galler Kantonalbank, and Luzerner Kantonalbank, have successfully launched cryptocurrency services in recent months.
The collaborative efforts of Swiss banks in exploring blockchain-based solutions and embracing the digital revolution demonstrate Switzerland’s commitment to staying at the forefront of financial innovation.
