Project update: Deposit token PoC 

Hello Martin, welcome to our newsroom in Zurich. We have not heard much about the SBA’s deposit token project since the white paper was published in March last year. What has happened in the meantime? 

SBA members have in fact been working hard on the project – as promised in our news article from June 2023. We had some intense discussions with 16 banks and other financial market participants, clarifying all sorts of issues surrounding the introduction of digital currencies and working together to lay the foundations. While the white paper proved to be an excellent starting point, there are various reasons why we have since moved away from the central concept of a multilayered joint token and shifted our focus back to the existing monetary system, in which deposit tokens and stablecoins serve as digital representations of customer deposits and cash respectively. 

The SBA announced a memorandum of understanding last week concerning a feasibility study of the issuance and transfer of a deposit token. What is a deposit token exactly? 

Deposit tokens essentially replicate the characteristics of conventional bank deposits, but they are issued on the blockchain. This means that the Swiss financial industry and its customers can use them as a means of payment and settlement for applications in the digital economy that are also based on the blockchain. Ideally, this technological transition will bring faster transaction speeds, more efficient processes, lower transaction costs and reduced counterparty risks. However, the real innovation here lies in the fact that a token is programmable, meaning that it can be used in conjunction with smart contracts to carry out predefined functions automatically. Multiple transaction steps can be processed in a single transaction. 

Could you give us a specific example? 

One example of a predefined function in a smart contract would be charging an electric vehicle while it drives. Induction coils integrated into the road would constantly supply energy to the battery, and the smart contract would bill the electricity used directly to the driver’s account with the supplier. This might sound far-fetched (laughs), but it is exactly the sort of forward-looking approach we need when it comes to developing new means of payment. A use case that is perhaps more relevant to banks is simplifying settlement for digital securities, and this will be tested in our proof-of-concept study by the participating banks.  

An outsider might assume that it is up to financial market players to develop new means of payment. What are the SBA’s aims with this project? 

The deposit token is intended to be at the heart of blockchain-based financial applications and constitute a public good as part of the Swiss franc payment infrastructure. It is vitally important to ensure that all financial market participants can be linked up to this new infrastructure. With this in mind, the banks taking part in the project – UBS, PostFinance and Sygnum – will make the results of the study available via the SBA to all members as well as the relevant authorities. The SBA will also present the key findings to the general public. Involving all relevant stakeholder groups should encourage maximum take-up and broad use of this innovative means of payment. 

When can customers expect the deposit token to be launched if the proof of concept is positive? 

A successful proof of concept in no way means that a deposit token will actually be launched. It is generally the SBA’s task to lobby for optimal regulatory, economic policy, tax and technology frameworks. Its digital currencies project is therefore aimed at contributing to the further modernisation of the Swiss financial system with the aid of distributed ledger technology. This involves storing and managing data and transactions in a decentralised system such as a blockchain. The goal here is to keep improving the services the Swiss financial centre offers for the benefit of its customers and thereby secure its competitive advantage in the digital economy. 

We keep hearing that the future is digital, but we will be called on to vote on the Cash Initiative in the not-too-distant future. This initiative aims to enshrine an obligation to accept cash in the Federal Constitution. How does the deposit token fit in with that? 

As a form of money, the deposit token will not compete with cash any more than conventional bank accounts do today. Firstly, I do not believe that paying for day-to-day purchases is the sort of complicated task for which Swiss people would need a new form of money. It is in fact easy, and usage of the various means of payment available mostly depends on customers’ experience, for example in using cash or payment apps. Secondly, anyone who wants to use cash today can do so, regardless of whether any blockchain-based and/or programmable means of payment is issued. The truth is that people are already using cash less and less. In my opinion, a deposit token will not influence this trend. 

Thank you so much for further explaining the “digital currencies” project, Martin.