SDX boss feels tailwind for digital exchange thanks to e-franc
Published: Friday, Aug 2nd 2024, 12:00
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The digital exchange SDX of exchange operator SIX has picked up speed in recent months with several bond issues. This was due to the introduction of a central bank digital currency (CBDC) by the Swiss National Bank (SNB) last November as part of a pilot project.
"We are feeling an increasing tailwind," says David Newns, Head of the Swiss Digital Exchange (SDX), in an interview with the news agency AWP. While the SIX subsidiary was not very visible for a long time after its launch with the first "digital bond" a good two years ago, it has attracted attention in recent months with the issue of six digital bonds with a total value of over CHF 750 million.
These bond issues were settled with the "digital franc", which the SNB has been issuing since November 2023. The currency, which is only available to financial institutions ("wholesale Central Bank Digital Currency", wCBDC), will continue to be available for at least the next two years. The SNB is also open to an extension.
SNB does not go bankrupt
The availability of "tokenized central bank money" for financial market participants is indeed a fundamental component for blockchain technology to become established in the financial market infrastructure, says Newns. For an exchange like the SDX, this is the best form of payment because it is a risk-free form of cash: "Only a central bank cannot go bankrupt."
In particular, a digital currency issued by private individuals - i.e. a so-called "stablecoin" backed by US dollars or Swiss francs - cannot replace a wCBDC in the same way. "The more such stablecoins a bank holds on its balance sheet, the more capital it needs to back them and therefore scaling is not possible within the framework of such a blockchain-based financial market infrastructure."
Newns is not currently worried that the SNB might discontinue its pilot project with the digital franc. No country has made as much progress with its wCBDC provision as Switzerland, emphasizes the British native.
New functions
Newns is now hoping to attract more participating banks to SDX and wants to show that its digital exchange can do more than a traditional infrastructure. One of the most important features of a blockchain exchange is the settlement of trades immediately after they are concluded - often referred to as "atomic settlement". On traditional exchanges, on the other hand, settlement only takes place one or two working days after the transaction.
According to the SDX boss, a blockchain also enables new functions. These include "fractionalization", i.e. the division of the ownership claim to a financial instrument into smaller parts. It is also much quicker to use an asset on a blockchain as collateral for a loan because ownership can be proven immediately.
Infrastructure of tomorrow
The parent company SIX has not yet disclosed how much it has invested in its digital subsidiary over the past few years. SDX CEO Newns, meanwhile, is convinced that the construction of the new financial market infrastructure represents a "long-term, strategic investment" for SIX.
Blockchain and DLT (distributed ledger technology) will revolutionize the industry, says Newns. Accordingly, it is not primarily about generating new revenue: "We are building the financial market infrastructure of tomorrow."
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