Why the Swiss National Bank does not want a digital franc

Could credit card payments be replaced by digital cash? KEYSTONE/© KEYSTONE / GAETAN BALLY

In Basel, the world's most important central banks are researching the future of our money. Instead of bank deposits, we could soon be paying with digital central bank money. The Swiss National Bank (SNB) remains cautious – why?

We have only just got used to paying by card everywhere and all the time – as if it were the most normal thing in the world. But soon everything could change with our money. In the latest Geldcast, we talk about this with Zeno Staub, the former CEO of Vontobel bank.

Card payments are not quite as normal as they first appear. The reason is that when we pay for our coffee or croissant by card, we are simply moving bank balances – for example, from our salary account to the bakery’s business account. And bank balances are created by commercial banks, not the central bank.

But that could soon change.

The world’s most important central banks are currently researching the future of our money. They are doing so at the Bank for International Settlements in Basel, a research institute with a top international reputation. The SNB is also involved in the project that has brought together the brightest minds in monetary policy research.

New form of money

The aim is to create a new form of money. The idea is that not only cash, but also digital money should now come directly from the central bank. This would allow us all to choose whether we want to pay with bank deposits or with digital central bank money. Economists have already found suitable names for this: the new currencies will one day be called e-francs or digital euros.

And it should also be possible to move this new money using state-of-the-art technology, namely on a blockchain. This is a highly complex, decentralised IT infrastructure that processes payments. What’s new is that a bank or central bank no longer has to be involved when we pay for something. Much like today, when we pay with notes and coins.

And such “digital cash” already exists. Away from the public eye, central banks have already tested their new form of money. But only for payments between banks. Companies in the real economy and private individuals do not yet have access to digital central bank money.

Complicated and controversial

But that could soon change. The European Central Bank wants to make a digital euro available to the general public before the end of this decade. “Retail Central Bank Digital Currency” is the jargon for this. And the introduction of such a form of money is almost as controversial as the name is complicated.

This is particularly true for Switzerland. Here, too, there are weighty voices from the financial world who, behind closed doors, are calling for the SNB to issue an e-franc as soon as possible.

This would give us a bomb-proof alternative to our bank deposits – which are only insured up to CHF100,000 ($113,000) (Credit Suisse sends its regards). And at the same time, an e-franc would give the emerging cryptocurrencies a run for their money.

The Swiss central bank, however, is cautious. An e-franc for the general public is not in the pipeline, said Thomas Moser, member of the SNB’s extended governing board, in an interview in the Crypto Valley Journal. According to Moser, the availability of an e-franc could lead to banks losing money even faster in a crisis. This would make the financial system even more unstable than it already is.

And the SNB is clearly not (yet) willing to take this risk.

Translated from German by DeepL/mga/ts