The Swiss National Bank isn't likely to launch a digital central bank token for the general population any time soon. But such a coin may have its advantages for the financial industry, the bank's president, Thomas Jordan, said in a speech on Thursday.
The Swiss National Bank (SNB) is working closely with colleagues at other central banks to evaluate the potential use of digital token money. The experts distinguish between giving access to such tokens to the general public and to the financial industry.
The SNB has concrete concerns about opening the access to households and companies in general: «Broad access to digital central bank money would call the existing two-tier banking system into question,» said SNB President Thomas Jordan in a speech in Basel on Thursday. «Instead of being the banker to the banks, as it is today, the SNB would act like a commercial bank, taking on the role that is currently played by the private sector.»
The Risk of a Bank Run
Moreover, broad access to digital central bank money could pose a threat to financial stability. Switching over from bank deposits to digital central bank money is easier than changing to physical banknotes, Jordan said. In a crisis situation, this could increase the risk of a bank run.
While the bank remains «critical» about the introduction of the token for the population at large, it is by contrast interested in getting more information regarding the launch of digital central bank money for the financial industry. Commercial banks and central banks alike – for instance in the context of the BIS Innovation Hub – are looking into the advantages and risks of such a move.
Potential Efficiency Gains
The financial industry is hoping for efficiency through the introduction of such a coin. Tests are being conducted with digital tokens in the areas of securities trading, settlement and management. The expectation is that ‘security tokens’ could be transferred between counterparties in near real time, resulting in more efficient management of securities.
«In-depth analysis will be required to determine whether security tokens can indeed bring the desired efficiency gains,» Jordan said. «Besides the technical hurdles that would to be overcome, steps must also be taken to ensure that applicable legal and regulatory requirements can be met. Moreover, efficiency gains must never be allowed to compromise the security of technical systems.»
