Is the Swiss National Bank planning to introduce a digital bank currency? [Analysis]

Central Bank Digital Currency (CBDC) – Is It Necessary?

The Chairman of the Swiss National Bank, Thomas Jordan, pointed out the lack of necessity for introducing a public central bank digital currency in the near future. Instead, he encourages focusing on interbank tests that could bring desired effects.

Technological Risks Outweigh Benefits

Switzerland is unlikely to adopt CBDC at the current time due to the dominance of technological risks over potential benefits. At the same time, Jordan emphasized the existing efficient and innovative payment solutions offered by the private sector, which are accessible to consumers and businesses.

Interbank Testing as a Priority

The Swiss National Bank has conducted numerous tests using wholesale CBDC to facilitate transactions between commercial banks such as UBS and Zuercher Kantonal Bank. However, despite progress, there are still issues that need to be addressed, given the technology is still in the early stages of development.

Challenges to Overcome

Jordan highlights the need to address issues related to the overnight storage of digital Swiss francs by the central bank, methods of remuneration, and defining financial institutions authorized to conduct CBDC-related transactions.

Swiss National Bank’s Position

The Swiss National Bank’s stance on CBDC is meticulous and aligns with similar views expressed by other financial regulatory institutions. This stems from concerns about the stability of payment systems and avoiding potential threats to the country’s economy.

Warnings from Other Financial Authorities

It is worth noting that Switzerland is not the only country facing the dilemma regarding CBDC. In March, the Swedish National Bank, Riksbank, issued a research note warning about potential risks associated with central bank digital currency. Attention was particularly drawn to the issue of unsynchronized data in offline transactions, which could pose liquidity problems for virtual operations.

Both central banks emphasize the importance of synchronizing offline transactions with online balances, pointing out concerns about liquidity risk associated with thin digital wallets and intermediary nodes facilitating communication between online and offline wallets. This is a significant challenge that needs to be addressed before the potential wide-scale introduction of CBDC.