World’s first wholesale CBDC: A conversation with Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX)

CFTE met Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX), at Point Zero Forum 2023 (PZF) at the end of June in Zurich. SDX is a DLT-based platform for licence exchange and depository, where financial instruments such as bonds and equities can be issued, traded and secured as digital assets on the blockchain.

Alexandre has 25 years of expertise in traditional and open finance, including global custody, asset services, and data standardisation. As the former head of the Securities and FX market, APAC, at SWIFT, he has a strong post-trade experience, and an additional 5 years specialising in digital assets and blockchain. 

Can you explain what the wholesale CBDC project’s purpose and mission are?

A: In SDX, we automatically settle transactions by the Delivery versus Payment (DvP) method by moving securities and tokenising Swiss Francs together on the blockchain. Today’s challenge is that to tokenise Swiss Francs, we follow a structure where banks deposit Swiss Francs into our account at the Central Bank, and then we tokenise them on the block for DvP purposes. This means the banks have exposure to SDX. If we were to go bust, they would face the risk of losing the money deposited in our account at the central bank. 

The solution to this issue is the wholesale Central Bank Digital Currency (CBDC), which enables the Swiss National Bank to issue Swiss Franc in a tokenised form on our platform, where the commercial banks have no exposure to SDX through the Delivery versus Payment (DvP) system. There is no risk exposure when banks want to take back their tokens since the Swiss National Bank will pay back in cash. To make it happen, we have been in discussion with the Swiss National Bank for 3-4 years with one of the projects called Project Helvetia which was testing processability in various scenarios. Now, we are moving to a series of live production transactions starting Q4 2023.

What are the challenges that your project has faced?

A: The challenge is to onboard banks on SDX infrastructure, we are currently onboarding five more banks on the system, and now eight banks in total due to the wholesale CBDC project. The challenge is that these banks need to be familiar with the wholesale tokenisation process since they are used to the Real Time Gross Settlement (RTGS) payment system of the Swiss National Bank. The second challenge is to ensure banks are familiar with atomic settlements that requires pre-funding to ensure liquidity before settlements. Since banks are used to the settlement of DvP, T+2 where two additional days are required to fund and settle the transactions, it is a challenge to onboard and train the banks. 

How is the situation of the project, is it going to launch soon?

A: We are currently working with the Swiss National Bank to issue directly on our platform since it is a live transaction against tokenised central bank money. We are completing the Swiss National Bank onboarding process for wholesale CBDC integration, scheduled to be finalised by the end of October. In addition, we have onboarded several other banks to ensure regulatory compliance for issuance and secure live transactions on our platform. 

Regulation and access controls are necessary to determine who can access different financial services and assets.

Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX)

What is the timeline of the project?

The project involves a series of live transaction productions and is going to last until Q2 2024. After six months of the project completion, the National Bank will conduct a comprehensive assessment and release a report. So at the project’s early stage, it is quite limited to see the potential possibilities but we will see the end result and the direction the project will take. 

Are there any ongoing projects Switzerland has with other countries in the financial landscape?

The beauty of Switzerland is that you have a bit of everything, for example, the Swiss National Bank is working on Project Mariana with the Bank of France and the Monetary Authority of Singapore on cross-border payment of (Decentralised Finance) DeFi. Switzerland is also involved in financial instrument tokenisation alongside the Monetary Authority of Singapore (MAS), enabling the native issuance of blockchain-based private equity and assets. From these approaches, we aim to leverage the efficiency of the current financial market while fostering an ecosystem to support startups, SMEs, and institutional investors. 

What do you think the future of finance will look like in 10 years?

The future of finance will revolve around a global digital asset-agnostic settlement infrastructure, which is the direction we are heading towards. However, it is important to acknowledge that it may take 10-15 years to reach. Regardless of other financial instruments involved, our focus is on leveraging the efficiency of the infrastructure using wholesale CBDCs and other forms of digital currencies. So our ultimate goal is to ensure a seamless, and efficient settlement process within the financial ecosystem. 

What potential risks should we anticipate in the field of technology policy over the next decade, and what governmental frameworks can effectively manage these risks?

It is unrealistic to think that DeFi is a smart contract-based service on blockchain that can function independently. While financial inclusivity remains a challenge, it is impossible to have financial instruments for everyone, since those are better suited for experts or institutions. Therefore, regulation and access controls are necessary to determine who can access different financial services and assets. Regulated entities like Financial Market Infrastructures (FMI) play a crucial role in establishing new regulations, to ensure the deployment of audited smart contracts and blockchains that can be utilised by a wide range of users. Moreover, it is crucial for market stability to maintain a comprehensive regulatory framework that serves as a reference in case of unforeseen issues in the future. 

Are there any last thoughts you want to share?

In the next 10 or 15 years finance and banking integration will be rapidly transforming with blockchain technology. Despite the prior focus on pre-trade and trade activities, post-trade infrastructure, often siloed, hasn’t seen much innovation. Now, with blockchain, we can significantly enhance post-trade processes. So, I’d advise young people, if they are looking for jobs, to work for a post-trade provider like SDX or a bank. 

The future of finance in 10 years

In summary, Alexandre Kech of SIX Digital Exchange (SDX) sheds light on the intriguing progress of the wholesale Central Bank Digital Currency (CBDC) project. This initiative aims to alleviate the risk exposure associated with tokenising Swiss Francs on the blockchain for Delivery versus Payment (DvP) purposes. The future of finance will likely be centred on a global digital asset-agnostic settlement infrastructure, a direction that may take 10-15 years to fully realise. It is essential to have regulatory frameworks to ensure the accessibility and stability of these emerging financial services. 

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