Many countries are discussing central bank digital currency (CBDC). Most central banks are examining the topic and the possible repercussions. However, only a few, such as China is planning to issue digital currencies in the short to medium term. And the Switzerland government is known for cryptocurrency-friendly has shot down the idea of issuing a digital Swiss e-franc in response to the Swiss Parliament’s request to look into the prospects of creating an e-franc in the future.
The rejection of the Federal Council
According to a Dec. 13 the press published on the Federal Council’s website, the Federal Council approved the Wermuth postulate (18.3159) which was adopted by the National Council had requested the Federal Council to explore the opportunities and risks of issuing a digital form of the country’s national currency, the franc. The Federal Council and the Swiss National Bank will continue to monitor developments in this area closely.
Following an analysis, the Federal Council concluded that a central bank digital currency (CBDC) cannot meet expectations for payment efficiency, effective monetary policy, and a more stable financial system. Instead, it would give rise to new risks, especially with regard to financial stability. The repercussions can be far-reaching depending on the design, and that there are better solutions for most of the areas considered.
The Swiss National Bank (SNB) shares the government’s view, arguing that the new risks to monetary policy and financial stability would pose a major challenge. As such, the government only sees the further development of a CBDC to be reasonable were it to be restricted to financial market players, and not accessible to the general public, while a ‘wholesale token’ issued by the SNB could possibly help to enhance efficiency in the trading, settlement, and management of securities.
Being asked this matter, Marc P. Bernegger, a Switzerland-based entrepreneur and cryptocurrency investor, stated he personally did not see that many real advantages of a Swiss e-franc. As a cryptocurrency entrepreneur, he rather saw a regulatory framework that allowed progress for real decentralized cryptocurrencies like Bitcoin. In the meantime, the developments in this field would have a far bigger impact than central bank-backed stable coins.
To summarise, the Swiss government feels that the presiding risks outweigh future benefits. The Council’s position makes it clear that it is not willing to take any risks.
The chance to develop CBDC in Switzerland
In October, the Federal Council noted that, while the mountainous European country is generally seen as very crypto-friendly and open to innovative approaches in the financial market, it remains committed to addressing the risks related to stable coins and cryptocurrencies.
That same month, the SNB and Bank for International Settlements (BIS) signed an agreement to cooperate on the BIS Innovation Hub Centre in Switzerland. The center is set to initially focus on two research projects — integration of CBDCs into a distributed ledger technology infrastructure, and analysis of the rising requirements for tracking fast-paced electronic markets by central banks. And the Swiss stock exchange, SIX, is working on plans to launch a stablecoin pegged to the Swiss franc. The e-franc aims to simplify transactions on SIX’s digital platform, SDX.
On the other hand, an alternative is also being discussed, a system that involves the issuance of prepaid payment solutions allowing citizens to make payments using a state-controlled system. Such a system also promises to allow users to be independent of commercial interests.
Various different reasons for and expectations about the introduction of widely available central bank digital currency have been voiced by the public and specialists alike. Proponents hope that it will bring better access to payment and financial services for the general public, as well as respond to a need for digital money that is free of default risk. Some economists expect that central bank digital currency will make payments more efficient, monetary policy more effective and the financial system as a whole more stable. Its proponents also think that central bank digital currency could help reduce tax offenses and money laundering.
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