Cryptofranc to bring no additional benefits to Switzerland, Federal Council warns

Maria Nikolova

Universally accessible central bank digital currency would give rise to new risks, especially with regard to financial stability, Switzerland’s Federal Council says.

During its meeting held today, Switzerland’s Federal Council approved a report examining the opportunities and risks of introducing a cryptofranc (e-franc). The Council concludes that universally accessible central bank digital currency would bring no additional benefits for Switzerland at present. Instead, it would give rise to new risks, especially with regard to financial stability.

The Wermuth postulate (18.3159), which was adopted by the National Council, had requested the Federal Council to examine the opportunities and risks of introducing a cryptofranc. The Federal Council had recommended that the postulate be adopted, as it has noted the increased interest in cryptocurrencies, digital payment systems and digital central bank currency. In a report published today, it has addressed the main questions relating to central bank digital currency.

The analysis conducted for this report shows that the introduction of a central bank digital currency will result in repercussions that can be far-reaching depending on the design, and that there are better solutions for most of the areas considered. The Federal Council therefore believes that universally accessible central bank digital currency would not bring any additional benefits at the moment. The Swiss National Bank (SNB) shares this view and sees the newly arising risks to monetary policy and financial stability, in particular, as a major challenge.

With regard to increasing the efficiency and security of cashless payment transactions, central bank digital currency conveys no advantages in Switzerland. The existing system is efficient and secure, and is also being refined continuously. There is room for improvement in the area of cross-border payments. However, the introduction of cryptofranc would not solve this problem. It would be preferable to improve interoperability between the existing systems and coordination between the parties involved.

In terms of the SNB’s monetary policy, the verdict on universal accessibility to central bank digital currency would be negative, as it would bring new risks rather than discernible benefits, the Council says. Such currency would not increase the leeway in terms of monetary policy. On the contrary, it would carry the considerable risk that – depending on the design – greater foreign demand for Swiss central bank digital currency could put the Swiss franc under heightened upward pressure, especially in times of crisis.

With regard to financial stability, the overall impact is rather negative. Relative to today, central bank digital currency would be likely to increase the risk of bank runs, even though it could have a disciplinary effect on the banking sector as an alternative investment.

As things currently stand, the further development of central bank digital currency that is restricted to financial market players would appear to be a more promising strategy. This would not have the same far-reaching and fundamental implications as universally accessible central bank digital currency.

The Federal Council and the SNB will continue to monitor developments in this area closely.

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