Today the Swiss Federal Council published a report on the potential for a universally accessible, or retail Central Bank Digital Currency (CBDC). In the paper, it concludes that it would be hard to achieve the promised benefits of a retail CBDC or e-franc and the risks outweigh the promise. Additionally, it sees other better ways to accomplish the advantages sought. In contrast, it sees far lower risks with an institutional CBDC.
The report outlines the perceived benefits of a retail CBDC to include financial inclusion, digital money without default risk, improved payments efficiency, monetary policy effective and financial stability. Additional potential advantages include a reduction in tax evasion and money laundering. But the authors state: “CBDC for the general public meets these expectations only partly or not at all.”
Aside from the risks that accompany a retail CBDC, it would also require legislative changes. Both the Federal Council and the Swiss National Bank (SNB) share the view that, for now, a retail CBDC would not bring additional benefits for Switzerland, but would bring risks.
For its part, the SNB is already engaged in exploring an institutional or wholesale digital currency with the SIX Digital Exchange and the Bank for International Settlements (BIS). There is already demand for this sort of currency to provide “cash on ledger” for distributed technology applications (DLT) and hence enable delivery versus payment for securities transactions. By doing so, there is a considerable reduction in counterparty risk.
The number of announcements about CBDC is accelerating. Earlier in the week, the Bank of Lithuania published its report on CBDCs. Plus yesterday there were comments about CBDC from European Central Bank President Christine Lagarde, as well revelations of a Chinese DC/EP pilot which were later downgraded to an internal test.