ZURICH LONDON The Bank of France and the Swiss National Bank are going to investigate Europe's first online bank digital currency payments, the banks said on Thursday, a move that will be a first for two of the world's top currencies.
The experiment will focus on the bank to bank's 'Wholeale' lending market rather than daily public transactions, but be the first time a digital euro and Swiss franc have been fully tested.
The Swiss bourse bank KR-3, Credit Suisse and France’s Natixis are involved in the project, together with the Swiss bourse operator SIX Digital Exchange, the Innovation Hub at the Bank for International Settlements.
The eurozone is adapting to a strong trend towards the digitalisation of payments, said Sylvie Goulard Deputy Governor of the Bank of France.
It is the second CBDC pilot from the Bank of France. In April it's made payments or'regulated' digital bonds issued by the European Investment Bank using blockchain technology.
The Bank of France is convinced that a digital currency is possible to provide maximum security and efficiency in online banking transactions, Goulard said.
The collaboration between the two central banks has been dubbed Jura, after the range of mountains divided Switzerland and France.
It will involve the exchange of a Euro retail CBDC against a Swiss franc wholesale CBDC through a payment settlement mechanism. These transactions will be settled between banks based in Switzerland and France.
The technology means payments will be very instantaneous while both central banks have to digitally approve them before they can go through.
In order for CBDCs to be used cross-border and in a way that preserves sovereignty, said Todd McDonald, co-founder of R3 firm behind the technology.
The central banks said the project was digital and was not a confirmation that their exploratory currency would be fully introduced.
The scheme, which will run for the next few months, is also the latest part of the Helvetia project, launched last year in Switzerland as a method to use tokenized assets with wholesale CBDC.
It comes after the central banks of Hong Kong joined a multiple digital currency project called Multiple CBDC in partnership with the BIS innovation branch based in China and United Arab Emirates.
Andrea Maechler of the SNB, said that her bank has taken part because it is essential for financial institutions to stay on top of technological developments. Wholesale digital currencies, usually limited to financial institutions that hold accounts with a central bank, are different from retail CBDCs available to the general public.
They are seen as the most popular proposal among the wholesale banks because of the potential to make existing monetary systems faster, cheaper and safer.
The SNB has been skeptical about digital currencies like Facebook's Diem project, formerly known as Libra, saying they could undermine its ability to propose fiscal policy.