Digital currencies from central banks are only at the beginning of their development. But they are coming, despite numerous risks: That is the tenor at the Crypto Finance Conference in St. Moritz.

With one representative each from the Swiss National Bank (SNB) and the Swedish Riksbank, the different approaches to digital central bank currencies (CBDC) were well represented at the Crypto Finance Conference St. Moritz 2021.

The SNB is working on a solution that will be reserved for the financial market, while colleagues in Sweden are developing their e-krona for the general public.

Moving Away From Cash

Nevertheless, both approaches have many things in common. First and foremost, there is the important role of external pressure. In Sweden, the use of cash has now declined very sharply, and only 1 percent of GDP is still in circulation as cash, as Cecilia Skingsley explained at the virtually held conference.

The deputy governor of the Riksbank stressed that this puts Sweden at the forefront of a global move away from cash and therefore inevitably confronts the question of how to ensure a stable supply of money.

Private Challengers

In addition, Sweden must also face the question of how the authorities intend to deal with the challenge posed by private providers of currency alternatives. The danger for a comparatively small economy is that an efficient solution offered globally could make it more difficult to enforce the Riksbank's monetary policy.

In the case of the SNB, the pressure comes from another source, as Thomas Moser, alternate member of the governing board, explained. SIX, which provides the financial market infrastructure in Switzerland, is expected to launch its digital exchange, SDX, this year.

SDX provided the impetus for the «Helvetia» project, which the SNB implemented together with SIX and as part of the innovation hub at the Bank for International Settlements (BIS) in Basel. Without SDX, the SNB would not be where it is today, as Moser freely admitted.

Cross-border Issues

Ultimately, the SNB is concerned with minimizing the risk of the new digital solutions. The project needed to clarify how a digital central bank currency could be launched on digital ledger technology (DLT) – also known as blockchain.

Moser was clear that the SNB needs to address the issue of cross-border payments. The challenge to central banks from emerging crypto companies is therefore quite welcome.

However, the solutions sought are likely to be a while in coming. Although the central banks of various countries now have advanced projects in their quiver, unlike the emerging private cryptocurrency providers, they have to meet very different requirements because they are directly responsible for system stability.

Protect Against Abuse

In Sweden, for example, the Riksbank requires an adjustment of the legal basis, as Skingsley explained at CfC St. Moritz. The law now in place dates back to the 1980s, when no one was talking about cryptocurrencies and e-kronor. The government has now launched an investigation, which should be completed by November 2022.

An important aspect of this is to clarify how to ensure that an e-krona cannot be abused by criminals, while still guaranteeing people's privacy.

Fear of Disruption

Project work is also ongoing in Switzerland. In this country, at least, the project is limited in scope. But the SNB remains concerned that it not inadvertently disrupt (or destroy) something that works with a new currency product.

That's why Moser remained cautious when asked when we can expect an e-franc. The crypto expert at the SNB does expect one to become a fact at some point, but it remains to be seen when.