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Swiss National Bank’s Stance on Central Bank Digital Currency (CBDC)
Swiss National Bank (SNB) Chairman Thomas Jordan recently expressed the central bank’s stance on the issuance of a central bank digital currency (CBDC). Despite recognizing the benefits of a wholesale CBDC, Jordan stated that the SNB currently does not see a need to issue a retail CBDC for public use.
Risks of Retail CBDCs
Jordan highlighted concerns regarding retail CBDCs disrupting the established monetary system and the symbiotic relationship between central banks and commercial banks. He emphasized that the introduction of a retail CBDC could lead to significant and unpredictable impacts on financial stability, potentially outweighing any benefits derived from such a system.
The skepticism towards retail CBDCs from the Swiss central bank comes amidst a global interest in digital currencies and blockchain technology, prompting central banks worldwide to explore the implications of these innovations on traditional banking practices and monetary policy.
Jordan also mentioned that the SNB has recently enhanced its Swiss Interbank Clearing (SIC) system, allowing the country’s leading banks to offer instant payments to retail clients through the platform. The upgraded SIC system serves as a basis for introducing new payment instruments and enabling programmable payments.
Merits of Wholesale CBDCs
In contrast to retail CBDCs, the SNB has demonstrated a more positive outlook on wholesale CBDCs designed to facilitate transactions between commercial banks using central bank funds. The central bank has launched a trial named Project Helvetia III to explore the advantages of utilizing wholesale CBDC in financial transactions.
The pilot project, which involves major financial institutions like UBS and Zuercher Kantonal Bank, has successfully settled bond issuances from various regions in Switzerland, showcasing the efficiency and security benefits of utilizing wholesale CBDC for settlements. Jordan emphasized that third-party platforms could issue wholesale CBDCs to securely and efficiently settle tokenized assets.
However, before making further decisions on the adoption of wholesale CBDCs in Switzerland, Jordan acknowledged the need to address specific issues such as overnight holding of digital central bank money, remuneration mechanisms, and access privileges for financial institutions.
Furthermore, Jordan placed CBDCs within the broader context of tokenization trends, suggesting that they could play a vital role in settling various tokenized assets. The SNB is contemplating the use of the Swiss franc wholesale CBDC for conducting monetary policy operations like repos or SNB Bills.
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