Federal Council publishes report on central bank digital currency

13.12.2019

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 Federal Council approved a report examining the opportunities and risks of introducing a cryptofranc (e-franc).

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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 (e franc). The Federal Council had recommended that the postulate be adopted, as it has observed the growing 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 term central bank digital currency denotes money that a central bank could create in digital form and make available to the general public. It would be complementary to existing forms of central bank money, i.e. banknotes and sight deposits held by commercial banks at the central bank. The exact design of central bank digital currency would depend on its intended use. The report examines the various options.

Other countries are also discussing central bank digital currency. Most central banks are examining the topic and the possible repercussions. However, only a few, such as China and Sweden, are planning to issue digital currencies in the short to medium term.

Various different reasons for and expectations about the introduction of widely available central bank digital currency have been voiced by the public and specialists alike. Proponents hope that it will bring better access to payment and financial services for the general public, as well as respond to a need for digital money that is free of default risk. Some economists expect that central bank digital currency will make payments more efficient, monetary policy more effective and the financial system as a whole more stable. Its proponents also think that central bank digital currency could help reduce tax offences and money laundering.

Additional benefits currently low and outweighed by risks

The analysis conducted for this report shows that central bank digital currency cannot meet these expectations, or only partly, that the repercussions 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.

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. A "wholesale token" issued by the SNB could possibly help to enhance efficiency in the trading, settlement and management of securities.

The Federal Council and the SNB will continue to monitor developments in this area closely. Rapid technological developments, changing payment needs and the experience of other countries may lead to a reassessment of the opportunities and risks of central bank digital currency for the general public in the future.

Picture Credit: Gaëtan Bally (Keystone)

Last modification 13.12.2019

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