Swiss push to rewire financial system in wake of banking crash
As Credit Suisse spiraled toward insolvency early last year, a group of Swiss bankers, technocrats and regional officials were already busy laying the groundwork for a new type of financial infrastructure.
Nine months after the Swiss bank was rescued by crosstown rival UBS Group in March 2023, the Zurich and Basel cantons issued the first “tokenized” bonds settled in Switzerland’s experimental digital currency. The Lugano city government followed suit shortly after.
On Thursday, the country’s central bank announced that it will extend the pilot program under which those bonds were sold by two years, describing it as “very successful.” Rival financial centers have yet to match the Swiss blockchain-based system.
Tokenization projects are underway in virtually all of the world’s major financial hubs, but in Switzerland, the efforts have taken on additional significance as officials try to change perceptions around its diminished banking industry.
The shotgun marriage between the two biggest Swiss banks sparked widespread criticism that authorities waited too long to intervene. To some, it was further evidence that a banking system evolved to discreetly manage money for the world’s wealthy was no longer fit to ensure Switzerland’s place among the preeminent financial hubs.
“Switzerland is well known as one of the most important financial centers in the world, but we have lost time,” said Paolo Bertolin, deputy chief financial officer of the city of Lugano. The country’s financial sector “has been asleep,” he added.
The central premise of tokenization is, at least on the face of it, relatively simple. By representing an asset like a stock or a bond in the form of digital tokens on a blockchain, everything from settlement to recording ownership can be made faster, less complex and potentially more secure, its proponents argue.
There are hundreds of tokenization projects underway around the world, some run in-house by large global lenders like JPMorgan Chase and others overseen by central banks or public-sector bodies like the Bank for International
Settlements. Use cases range from pillars of the world economy like trade finance to more gimmicky applications, such as tokenizing a centuriesold violin. Besides in Switzerland, tokenized bonds are also listed in markets including the US and Luxembourg.
Citigroup predicts there will be as much as $4 trillion worth of tokenized securities by 2030.
“Over time, more and more assets will move to digital exchanges — initially illiquid assets, and perhaps with new regulations traditional assets could move as well,” said Marni McManus, Citigroup’s head of banking for Switzerland, Monaco and Liechtenstein.
Where Switzerland is further along than others is in integrating the various aspects of issuing and trading tokenized bonds.
The SIX Digital Exchange, established in 2021 for trading in digital bonds and stocks, says it is the world’s first such venue to be fully regulated.
In 2023, Switzerland went a step further and allowed tokenized bonds issued on SDX to be settled in a central bank digital currency, part of the pilot program the Swiss National Bank is now extending. On June 11, a 200 million franc ($224 million) bond sold by the World Bank — the first digital fixed-income instrument from an issuer based outside Switzerland — was settled this way. (Bloomberg)