Central banks promote cryptocurrencies – The Swiss National Bank-Jordan evaluates the electronic franc

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Interim conclusion on Helvetia 3, a Swiss experiment with digital central bank money: What do international central bankers expect from this technology? What are they afraid of?

How deep will the disruptions in the financial system caused by cryptocurrency technologies be? This question was looming around the hall of the Metropole restaurant in Zurich, on Monday evening, directly opposite the Swiss National Bank building.

The event had a somewhat vague title, “Towards the Monetary System of the Future.” However, the public event, which was broadcast via video, was an event in many ways.

Trial balloon

In terms of analysis Thomas Jordanthe outgoing head of the Swiss National Bank, previous experiences with Helvetia III, the Swiss National Bank's trial balloon for issuing digital central bank money to commercial banks finews.ch It has already been submitted.

On the other hand, top heads of central banks and international financial institutions provided interesting insights into their ideas and technology labs when it comes to cryptocurrencies.

Experts from the International Monetary Fund, the World Bank and the Bank for International Settlements

The Swiss National Bank brought leading cryptocurrency analysts from the Bank of England (BoE), the Bank for International Settlements (BIS), the World Bank, and the International Monetary Fund (IMF) to its event in Zurich.

In his speech on Helvetia III, the President of the Swiss National Bank stated that by issuing digital central bank money when placing digital bonds from the cantons of Basel-Stadt and Zurich as well as the cities of St. Gallen and Lugano, the national bank is the “national bank”. The world's leading bank is “the first central bank to issue central bank money in tokenized form via a regulated third-party financial infrastructure.”

“Tokenized Central Bank Money”

The beta test is a new era: “It makes tokenized central bank money available to settle private sector transactions on the same third-party platform on which tokenized assets are held.”

Jordan also explained that in the traditional financial system there are two types of money that can be exchanged for each other at any time: first, central bank money in the form of coins, banknotes and demand deposits from commercial banks with the central bank. Secondly, commercial bank funds, i.e. customer deposits with commercial banks.

Every transfer is tracked on the central bank's balance sheet

If a bank customer transfers funds to another bank's account, this transaction takes place in Switzerland via the SIX SIC interbank payment system, but “is finally settled by transferring central bank funds between the demand deposits of commercial banks on the balance of central bank paper.” The head of the Swiss Central Bank said.

With Helvetia III, the Swiss National Bank has now provided financial institutions with digital central bank money based on cryptocurrencies for the first time, with which they can finally settle bond trades discussed among themselves.

Convert SIC to SDX

The SIX interbank payment system of the traditional world, i.e. Swiss Interbank Clearing (SIC), has been replaced by the Swiss Digital Exchange (SDX), a “regulated trading and settlement platform for digital assets”, like Jordan which is also operated by SIX.

Jordan's conclusion from the beta test: It is still too early to draw a final conclusion, but initial experiments with the Helvetia 3 project show that wholesale CBDC trading (central bank digital currency; Note red.) actually provides a mechanism for maintaining settlement interests via central bank funds in a token world.

“Economically and legally equivalent”

Digital central bank money can be “issued on an external platform and used to settle tokenized assets securely and efficiently.” They are “economically and legally equivalent to demand deposits on our balance sheet.”

We have also seen banks, payment infrastructure operators and the Swiss National Bank able to reflect the new technology “into their internal processes.” The Swiss National Bank can “retain control over the issuance of wholesale CBDCs on SDX through technical means and contractual agreements.”

Differentiation from “retail”

The SNB chief made a sharp distinction between forms of what he called “retail CBDCs,” that is, digital central bank money based on cryptocurrencies that the central bank makes directly available to end users. The Swiss National Bank sees “there is no need for such funds from a digital central bank for the general public in Switzerland.”

Central banks in China, England and the eurozone are flirting with such formats. According to Jordan, digital central bank money for individuals could “fundamentally change the current monetary system, as well as the role of central and commercial banks, which will have far-reaching consequences for the financial system.”

There is no need for this in Switzerland

Especially with the continuous modernization of the SIC payment system towards instant payment (finews.ch As you mentioned), even without cryptocurrencies, Swiss consumers will have “access to a wide range of efficient and innovative payment instruments across the private sector.”

But this modernization of the SIC system managed by the National Bank and commercial banks within the framework of SIX is based on the idea of ​​“strengthening the role of central bank money in retail payments.”

High quality panel

Strengthening the role of central banks? These concluding words from Thomas Jordan set the tone for the following panel Jorge is familiarVice President and Treasurer of the World Bank, Sarah BreedenDeputy Governor for Financial Stability at the Bank of England, Hyun Sung ShinHead of Research at the Bank for International Settlements and Dong HeeDeputy Director of the Monetary and Capital Markets Department at the International Monetary Fund.

The discussion was moderated by A Antoine Martinthe newly appointed Head of Section III of the Swiss National Bank's Board of Directors, whom he will succeed on January 1, 2024. Andrea Maschler seem. The economics doctor, originally from FWD, recalls many years of professional positions at the Federal Reserve Bank of Kansas City and the Federal Reserve Bank of New York.

Lagarde: “What is Bitcoin?”

Representatives of the International Monetary Fund, the Bank for International Settlements and the World Bank identified various points in time when the topic of cryptocurrencies came to their attention. At the IMF, Hyun Sung Shin says, that was in 2014 or 2015 when she was then managing director. Christine Lagarde Its employees asked: “What is Bitcoin?” How it works?”