The introduction of digital central bank currency isn't going to happen overnight. But the pressure on the Swiss National Bank to up the pace in respect to cryptocurrencies is palpable, as finews.com can reveal.

In October, the Swiss National Bank (SNB) went public with the launch of the innovation hub it now jointly operates with the Bank for International Settlement (BIS). The research fellows took up their work with a study on the integration of digital central bank money into a distributed ledger technology infrastructure.

Experts from SIX, the Swiss stock exchange operator, also got involved – and with it indirectly the banking world. The question now arises what the financial market expects to get out of such a project – even if it is early days in the project?

Digital Central Bank Money as a Game Changer?

Digital central bank money is a key component in the technological development of the financial market and the services it provides. With the introduction of a so-called settlement coin, the basis is laid for the instant settlement of payments, which will help the industry make a quantum leap in its business.

«Digital banking is moving forward, but the settlement of payments for example is still taking way too much time. It is therefore right and important that innovation is being pursued,» said Martin Hess, chief economist of the Swiss Bankers Association, in an interview with finews.com. «Clients want access to the entire range of state-of-the-art banking services.»

Under Pressure From New Challengers

Established banks are under increasing competitive pressure from neobanks such as Revolut, N26, Neon or Zak – but these new challengers only offer a fairly narrow set of services to their clients. As banks bid to fend off the challengers, whose operating costs are but a fraction of those of established players, they have accelerated their efforts to digitize operations. Only a few days ago, the biggest Swiss bank, UBS, even installed a digital banking expert as its next chief executive officer.

For banks such as UBS it is evident that digital central bank money is an important piece of the jigsaw in the further development of banking.

«From an institutional point of view, digital central bank money would simplify the clearing and handling and have a positive effect on capital efficiency and reduction of risk,» said UBS in a statement to finews.com.

Key Implication of the Private Sector

UBS experts are working with the Swiss Digital Exchange (SDX) on two use cases that would benefit from digital cash-tokens for an instant settlement.

The bank is also part of the Fnality International group that pursues the project of a utility settlement coin. It aims to create a network for decentralized financial market infrastructure and will provide regulated and short-term digital money.

Libra: a Danger for Classic Banking

The interaction between private and public sector players is interesting in light of the private initiatives that have increased the pressure on state actors, unsettling old certainties.

First and foremost is Facebook's Libra project. The idea of creating a digital currency available for all, provided by a non-state actor, met with concern, not only in Switzerland.

The banking world is equally less-than-pleased about the idea because it aims directly at the consumer, touching upon the core interests of retail banking.

B2B – and not C

Swiss banking is skeptical about the introduction of such a digital currency for everyone, as it is also being evaluated by the Swedish central bank.

«The differentiation from a digital retail currency is important to us,» said Adrian Schatzmann, digital expert at the Swiss Bankers Association. «The introduction of such a currency would eliminate the two-tier banking system.» SNB President Thomas Jordan recently confirmed that this wasn't on the cards.

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