Featured Product

    Thomas Jordan of SNB Discusses Regulatory Stance on Digital Money

    September 06, 2019

    Thomas Jordan, Chairman of the Governing Board of SNB, discussed the pros and cons of the issuance of digital token money by private players and central banks. He highlighted that a variety of interesting potential uses exist for digital tokens, including the privately issued digital tokens in the form of stablecoins and the state-issued digital token money for financial market participants. While presenting the SNB stance on digital forms of money, including views on the Facebook-affiliated Libra, he outlined the regulatory and financial stability challenges posed by digital money, thus explaining why SNB remains critical about the idea of broad access to digital central bank money.

    Mr. Jordan highlighted that it is important that to understand the characteristics and implications of these various tokens, as they could influence the SNB mandate. He pointed out that crypto tokens are more like speculative investment instruments than "good" money in terms of their characteristics. Users typically describe money as "good" if it has a stable value over time, is broadly accepted, and enables efficient payments. Given these parameters, it seems unlikely that crypto tokens will be widely used as money in Switzerland; however, the picture may be different for stablecoins. He added that Libra and the Swiss franc stablecoin represent only a small part of the spectrum of possible stablecoins. While discussing the privately issued digital tokens, he highlighted that the Facebook-affiliated Libra can be classified as a stablecoin, as its value is supposed to be kept stable against a basket of official currencies. However, there is no guarantee that Libra will be converted—proportionally and at any time—into the currencies in the basket. Libra is thus its own unit of account and a private currency.

    He opines that stablecoins hold greater promise for widespread deployment as a payment instrument and store of value than the crypto tokens. This is why it is important to analyze and classify stablecoins rigorously from a regulatory and monetary policy perspective, said Mr. Jordan. On the regulatory front, it is essential to have clarity about the economic function of stablecoins. Stablecoins may have the characteristics of a bank deposit or a privately issued banknote. This would be the case for the Swiss franc stablecoin, were it to be used widely for cashless payments or as a store of value, as it would effectively become a substitute for Swiss franc bank deposits. The issuers of such Swiss franc stablecoins would take on functions similar to those of a bank—all the more so if they were to use the funds collected to finance risky, long-term projects and engage in maturity transformation. If the economic function of stablecoins is comparable to that of bank deposits, their issuers should have to play by the same rules as banks.

    The principle of regulating by activity rather than by technology (same business, same risks, same rules) must apply here. However, not all stablecoins are directly comparable with bank deposits, particularly if a token is used more for investment purposes. Certain stablecoins could, therefore, conceivably be issued without the issuer holding a banking license. FINMA already classifies tokens according to their function and the regulatory treatment is different for each category. Whether or not a banking license is required, stablecoin issuers must abide by certain regulations, just like any other financial market participant. These range from investor and data protection to rules on combating money laundering and terrorism financing. Thus, stablecoins present many regulatory challenges, which in turn require close cooperation between various authorities. This is particularly true of cross-border projects like Libra.

    Finally, Mr. Jordan stated that SNB remains critical about the idea of broad access to digital central bank money. This is because "broad access to digital central bank money would call the existing two-tier banking system into question." Instead of being the "banker to the banks, as it is today," SNB would act like a commercial bank, thus taking on the role played by the private sector. Broad access to digital central bank money could also pose a threat to financial stability. Switching over from bank deposits to digital central bank money is easier than changing to physical banknotes. In a crisis situation, this could increase the risk of a bank run. Thus, the implementation of this proposal would have far-reaching consequences not just for banks, but also for the entire financial system. These fundamental concerns would argue against opening up access to digital central bank money to all households and companies. Furthermore, cashless payments in Switzerland are already reliable, secure, and efficient and the system is continuously being updated and refined. So from that standpoint, too, access to digital central bank money for all households and companies, whether in the form of Swiss franc tokens or sight deposits, would bring virtually no advantages. He emphasized that SNB is closely following the developments in this area and is actively involved in the debate, not least through its future participation in the BIS Innovation Hub.

     

    Related Link: Speech

     

    Keywords: Europe, Switzerland, Banking, Securities, Digital Token Money, Stablecoins, Crypto Assets, Financial Stability, Libra, Digital Currency, Fintech, Regtech, SNB

    Related Articles
    News

    BaFin Publishes Submission Deadlines Under Solvency II

    BaFin published quarterly and annual submission deadlines on the Solvency II reporting page on its website.

    February 25, 2020 WebPage Regulatory News
    News

    RBNZ to Address Cyber Risk Through Risk Management Guidance

    RBNZ announced that it is strengthening its efforts to enhance resilience of the financial system from cyber threats, including developing risk management guidance and promoting information-sharing in collaboration with industry and other public organizations.

    February 25, 2020 WebPage Regulatory News
    News

    FSI Convened Meeting on Climate Risk Assessment in Financial Sector

    The Financial Stability Institute (FSI) of BIS issued a summary of the meeting held in Basel from February 20-21, 2020.

    February 24, 2020 WebPage Regulatory News
    News

    BCBS Updates Basel III Monitoring Workbook in February 2020

    BCBS updated the workbook for Basel III monitoring to version 4.1.2, for the collection of December 2019 data.

    February 24, 2020 WebPage Regulatory News
    News

    Bank of Finland Updates Validation Checks for AnaCredit Reporting

    Bank of Finland published Version 1.8 of the validation checks for credit data collection under the AnaCredit Regulation.

    February 24, 2020 WebPage Regulatory News
    News

    APRA Plans to Assess Climate Risks and Develop Prudential Guidance

    APRA published a letter that outlines its plans to undertake a climate change vulnerability assessment and develop a prudential practice guide focused on climate-related financial risks.

    February 24, 2020 WebPage Regulatory News
    News

    FDIC Publishes Guide to Help with Third-Party Risk Management

    The technology lab of FDIC (FDiTech) published a new guide to help financial technology, or fintech, companies and others partner with banks.

    February 24, 2020 WebPage Regulatory News
    News

    PRA Removes References to LIBOR in SoP on Pillar 2 Capital and SS20/15

    PRA published a policy statement (PS3/20) that provides updates to certain supervisory statements (SS20/15, SS28/15, and SS35/15) and statements of policy (SoP).

    February 24, 2020 WebPage Regulatory News
    News

    APRA to Transition to Annual Stress Testing of Large Banks in 2020

    APRA published key findings of the stress testing assessment conducted on authorized deposit-taking institutions.

    February 21, 2020 WebPage Regulatory News
    News

    BoE Updates Version 1.1.0 of Taxonomy for Form AS and Form FV

    BoE published the statistical notice 2020/01 that provides an update to Version 1.1.0 of the taxonomy for forms AS (MFI holdings of securities collection) and FV (Financial Vehicle Corporations return) and the associated validation rules.

    February 21, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4729