Although the Swiss central bank has been exploring how to use decentralized finance (DeFi) protocols for trading and settlement, it sees no reason for them to upend the entire financial system.
Distributed Ledger technology (DLT) can be useful to support the current financial system, Swiss National Bank (SNB) governing board member Andréa Maechler said at the Swiss Finance Institute’s (SFI) annual event on Banking and Technology in Zurich on Thursday.
Just last week, the Bank for International Settlements, the SNB, and two other central banks announced they are exploring cross-border central bank digital currency (CBDC) trading and settlement using DeFi protocols.
However, these projects are limited to the wholesale side and not the retail side of Switzerland's two-tier financial system, she said, reasoning the setup - where one type of money is used between the SNB and commercial banks (reserves), and another type of money is used in the retail space (bank deposits)- works particularly well and proved its resilience in previous financial crisis.
Retail Crypto
Although the SNB continues to engage in DTL projects within its wholesale operations, it currently sees «no compelling reason» to issue a retail central bank digital coin (CBDC) in Switzerland, she said.
UBS is equally as restrained when it comes to handling cryptocurrencies. Although client demand exists for cryptocurrencies, Switzerland's largest bank does not enable clients to buy or sell them, CEO Ralph Hamers said during his speech at the event.
The bank has so far focussed on tokenizing asset classes backed by real value assets, such as real estate, art, and gold, he said.
Cash Still King
Not only is financial inclusion, a key argument for cryptocurrency advocates, of little relevance in Switzerland since most people have access to the banking system and are owners of bank accounts, but the Swiss are still keen users of cash, Maechler said.
Moreover, while the European central bank might have more reason to use digital currency as a way of ensuring seamless cross-border payments among member states, Switzerland doesn’t have this requirement.
Instant Payments
For its part, the SNB is continuing to work on a real-time payments infrastructure, but the private sector needs to do its part to develop a solution that works on the retail side. Part of the advantage of instant payments is they remove counterparty risk and reduce credit risk, she said.
