St. Gallen, the economic center of eastern Switzerland, lies between Lake Constance and the Alps. Image by Hansueli Krapf via, license: Creative Commons

After the canton of Zurich and the cities of Basel and Lugano, St. Gallen has now also issued a digital bond for 100 million francs, which will be settled with the “wholesale CBDC” of the Swiss National Bank.

The Swiss city of St. Gallen has issued a 100 million franc digital bond. What makes it special is that it is part of the Swiss National Bank’s pilot project for a “wholesale CBDC”: a digital franc based on blockchain – but not for the public, but exclusively for the financial sector.

As in the canton of Zurich and the city of Lugano, the total amount of the St. Gallen bond is 100 million Swiss francs. The city of Basel was slightly higher at 105 million.

The bond is processed via the SDX platform, the “SIX Digital Exchange”. The company claims to be the “world’s leading financial market infrastructure for digital assets” and is a child of the Swiss banking industry. It serves as an infrastructure platform for experimenting with digital assets, smart contracts and tokens.

Something changed in November that was technically rather trivial, but economically and legally a leap. Until November, SIX offset the digital bonds with tokenized Swiss francs that it created itself. Similar to stablecoin providers, it backed the tokenized francs with deposits at a bank, in its case the Swiss central bank.

Since November, however, transactions have been carried out via the so-called wholesale CBDC. This is also a token on SDX that is backed by deposits at the central bank. Instead of SDX, the central bank itself is now issuing the token. This makes it a “Central Bank Digital Currency”, a CBDC.

Unlike general CBDCs, such as those currently being rolled out in China and discussed in the EU, a wholesale CBDC is intended only for payment settlement between financial institutions. It does not claim to become a public means of payment, not even for investors or foreign trade, but is intended solely to streamline financial processes.

The technical platform that SDX – and thus also the digital franc – uses is the Corda Enterprise Blockchain from R3. We described Corda in more detail in this article about a digital bond from the World Bank. It is a plausibly constructed blockchain-like database, technically tailored for finance, but running on private, locked nodes. R3 has been banks’ answer to Bitcoin since 2015, and Corda is its most successful fruit yet.

The French National Bank is also getting involved with Corda. Together with R3, the Swiss National Bank, the Bank for International Settlements (BIS) and several private sector players, including SDX, it is testing an “atomic swap” between a digital euro and a digital franc, i.e. an exchange that takes place in real time and without an intermediary expires.

The “wholesale CBDC” is therefore not a purely Swiss project, but seems to be attractive across Europe and possibly worldwide. While the ECB still doesn’t want to decide whether and how it will launch a CBDC, the private sector and national banks are already creating facts.

Such a digital currency has nothing in common with the ideals of Bitcoin; Even the most centralized coins and tokens in the ecosystem are paradises of transparency, autonomy and freedom compared to it. Corda is a thoroughly centralized, closed-to-the-public blockchain or blockchain-like distributed technology that may capture some technical advantages, but strips it of all democratizing and emancipatory potential.

It still has its appeal for the financial industry. SDX’s DLT infrastructure allows processes and payment processing to be accelerated and middlemen eliminated. It promises lower costs, shorter processing times and increased liquidity – not just for digital bonds that cities and cantons use to raise money, but in principle for all types of investments and securities, including stocks and cryptocurrencies.

In short: it is an evolution of existing financial technology, nothing more and nothing less. Financial institutions will initially benefit from it, and secondarily investors, investors and citizens will also benefit from it.


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