Swiss Central Bank Sees No Need for Public CBDC as Risks Outweigh Benefits

In a recent statement, Thomas Jordan, the head of the Swiss National Bank (SNB), articulated the bank’s position against launching a public Central Bank Digital Currency (CBDC). Speaking at an event in Zurich, Jordan highlighted that the existing private sector payment solutions are efficient and innovative enough to meet the current needs of consumers and businesses, making a retail CBDC unnecessary.

Current Landscape and Private Sector Solutions

Jordan emphasized that the private sector already provides numerous payment solutions that are both innovative and efficient. These solutions meet the needs of consumers and businesses without necessitating a fundamental change in the monetary system. He pointed out that introducing a retail CBDC could significantly alter the roles of central banks and commercial banks, potentially leading to far-reaching consequences for the financial system.

Wholesale CBDC Trials

The SNB has conducted several trials using wholesale CBDC, aimed at facilitating transactions between commercial banks such as UBS and Zuercher Kantonal Bank. These trials focus on using central bank funds to expedite and reduce the costs of interbank payments. The results have shown promise, but the SNB remains cautious about extending these benefits to a retail CBDC.

Regulatory and Technical Challenges

Several unresolved issues need addressing before a public CBDC can be considered viable. These include the feasibility of overnight holdings of Swiss franc digital funds, the methods of remuneration, and the eligibility of financial institutions. The technology is still in its early stages, and the potential risks, particularly regarding financial stability and data privacy, remain significant concerns.

Global Perspective on CBDCs

The SNB’s cautious stance aligns with similar views from other central banks. For instance, the Swedish central bank, Riksbank, issued a research note highlighting the potential risks of CBDCs, especially concerning unsynchronized data in offline transactions. The note stressed the importance of ensuring that offline transactions are synchronized with online balances to mitigate liquidity risks and prevent shadow banking activities.

Long-term Outlook and Future Directions

While the SNB is not ruling out the possibility of a public CBDC in the future, the current focus will remain on improving and expanding the existing private sector solutions and interbank trials. This approach allows the SNB to benefit from the advancements in digital currency technology without exposing the financial system to unnecessary risks.

The SNB’s ongoing research and trials will continue to inform its policies and strategies, ensuring that any future moves toward a public CBDC are grounded in comprehensive risk assessments and technological readiness.

Conclusion

The Swiss National Bank’s decision to hold off on introducing a public CBDC underscores the complex balance between innovation and stability in the financial sector. While recognizing the potential benefits of digital currencies, the SNB emphasizes the importance of addressing the inherent risks and ensuring robust solutions are in place. As the global conversation around CBDCs evolves, the SNB’s cautious yet forward-looking approach provides a valuable perspective on navigating the future of digital finance.