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Central Bank Digital Currencies and Blockchain: The view from the Swiss National Bank

Thomas Moser
Alternate Member of the Governing Board at Schweizerische Nationalbank
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CoinGeek London Conference 2020
February 21, 2020, London, UK
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About the talk

Topic: FinTech

Thomas Moser, an alternate member of the governing board of the Swiss National Bank (SNB), took the stage at CoinGeek Conference in London to give insights into the Swiss central bank’s view on digital currencies.

Read more: https://coingeek.com/swiss-central-bank-exploring-various-cbdc-solutions/

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About speaker

Thomas Moser
Alternate Member of the Governing Board at Schweizerische Nationalbank

Thomas Moser, born in 1967, concluded his university studies in 1997 with a Doctorate in Economics from the University of Zurich. From 1994 to 1996, he was employed as a teaching and research assistant at the University of Zurich's Institute for Empirical Research in Economics, and from 1996 to 1999, as an economist at the KOF Swiss Economic Institute (formerly Swiss Institute for Business Cycle Research) at ETH Zurich. In 1999, he joined the SNB as a senior economist in the International Monetary Relations unit. He was in Washington from 2001 to 2004, working first as Advisor to the Swiss Executive Director at the International Monetary Fund (IMF) and then, from 2002, as Senior Advisor. After returning to Switzerland in 2004, he took up a position as Assistant Director and Deputy Head of the International Research and Technical Assistance unit at the SNB in Zurich. From early May 2006 to the end of 2009, he was Executive Director of the IMF constituency in Washington headed by Switzerland. The Federal Council appointed Thomas Moser Alternate Member of the Governing Board in Department I with effect from the beginning of 2010. As of 1 September 2018, he moved to take up the same position in Department III, where he is responsible for the operational management of the Money Market and Foreign Exchange, Asset Management, Banking Operations, and Information Technology divisions, as well as for the Financial Market Analysis unit and the Singapore branch office.

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Hello, good morning. I thinks we're heading to hear. I will talk about the central bank's. You concretely, the Swiss National bank's, you about digital currencies. Now, you may be familiar with the saying, in God, we trust all others pay cash that has been in that comment saying for quite some while so you sometimes see that in the store Economist app that have turned out a little bit around. And they have said, this Frost is the root of all money. Now, why? Why is that? Let me quickly explain if I buy something from you, I can either say I pay you tomorrow. I will or I pay you next week

so I can buy something on credit and that requires that. You trust me, you will have a counterparty risk on your wrist that the risk is that I will not pay you tomorrow or next week, he's basically the same if I pay with a credit card or if I pay with a debit card if any kind of a bank transfer, if I pay with a debit cards, but that basically means that the claim that I have on the bank, my account, I transferred Are you so that you will have to claim on the bank. But then you have to account to party risks name of the bank, that your account is, could go bankrupt. So, you're not getting

rid of that risk and money, this thing. If I pay you with this, you don't need to have a counterparty risk. That something that doesn't have a counterparty risk. It's the thing itself there. Other issues is trust involved here but basically if I pay you that, it does matter to you how credit for a failure and it doesn't matter to you. How credit works with my bank are you okay in case you have to think anything else? And that's why I called him is to say that money is basically a substitute for trust. You don't need to cross the counterparty. Now, if you look at the world as we

have it today at the bank notes, that's basically the only monetary assets. The only traditional monetary assets that you can acquire, that doesn't contain a counterparty risk Central Bank also have deposits, which part of a Nation. Also, have no, because central banks produced at They cannot go bankrupt. They can always produce that that type of money, but you cannot have an account with your Central Bank, Only commercial things can have the counter strenght, the banks, and then, the commercial Banks, gives you an account that we are getting you a

counterparty. Your credit risk comes in with the money. Now latest development, of course, I kept the currency is Bitcoin for instance, with that positive thing in itself. And you get a Bitcoin, there is also no counterparty risk in all, but the problem there is that it's not very, very widely accepted. That mean you can pay with Bitcoin a lot of places but clearly, no, not everywhere. The same altar with gold and the other problem is, of course that you have this price fluctuations. Now, if you just want to save in Bitcoin stand, it doesn't really

matter that much to you like, it doesn't really matter to you, that equity share prices change from day-to-day your bond prices change from day-to-day. But if you want to make a payment with it that he mad Solution that a lot of cryptocurrencies came up with is today, create stablecoins, but they basically introduce again this weekend that you can redeem that stable calling for central bank money, again, need for commercial bank, money of a central bank money. It's basically the same thing that the

commercial Banks to his bank. Deposits in the way, we are also stapled coins because you can always go to your bank and get the real thing this year. So in that sense it it replicates what we have in the traditional interpretation sex or so. Give access to households to to retail customers at to electronic person to central bank account that is either in form of deposits or in some kind of a crypto-currency token form. Now, the bank for international settlements, She's basically the bank off. The central bank's has made now three years in a row at survey among central banks

asking them are you working on CBC Central Time, digital currencies? And you see that I think about 66 central banks have responded. And you see that a large number among them, say, yes, we are working on it. It's 80% and you also has been steadily increasing over the last year. If you ask, then what are you working on? Then about 12%, 50% associate, wholesale Central, Bank currencies, which means these are only available to Bank Trust nowadays. The bank deposit not to retail customers household and you see that

about 30% say we are working on general purpose, Central Bank, digital currencies, which would be available to to everyone and then I locked your number says for now. Actually at the statistics it's not that true that very often Suite in this name, just an example. And if you look at Sweet and Sassy and in the lower left and it's really the really the case you have found a horizontal cash use for payments on the vertical, cashews for story of when you and you see

the sweetness, the only country where cash use for both purposes. He's declining but for all other countries at least use for sport of. Where are you? It's actually increasing its not decreasing. If you look at you with the payments that you have to mix, if I do still have a large amount of countries where use of of cashier banknotes is still increasing her both purposes. Switzerland has not been successful. You seated basically on the on the line there, they both use for storage value. In used for payments is still increasing a Great. Britain is basically just into Center. Nothing is

happening. It's not decreasing, it's not increasing but those sweetness Special case. If you ask central banks, are you done working on a CBC? Then you hear a lot of times payments efficiencies and I think one thing that they be learned from Bitcoin or cryptocurrencies infintech sees that the payment system has been very inefficient especially the cross-border payments system so that needs to be something done about it. We can send an email messages within seconds to the from here, to the United States, but if you want to make a payment from here to United States, through that

commercial Banks, he takes several days and there is clearly no need for that. And that's one of the reasons by central banks have been starting to work on that. Are you here? Argument, like payment request is financial stability for emerging markets to financial inclusion is very important. They say a lot of people do not have bank accounts but they have a smartphone so you can actually include them into the financial system. Know what is the likelihood that central banks are going to issue a blanket and currencies in the central bank

has already issued at you have always to be careful on the one hand there a lot of that proof of Concepts out there LOL, sad Pilots, which is not the real thing yet something is issued for these not a claim on the Central Bank in but I said in the beginning only if something is a liability of the central bank then you don't have to count to call the dentist at the real thing. But if you have another entity issuing, it like a telephone for most of, then you still have the candies counterparty risk. So it's been raised from this

year from January. If they are asked, what is the likelihood that you will issue a general purpose TV DC's one of these available to everyone then you have 10% to say within the next 3 years. Percent between the next six to you. If you ask the same thing about wholesale tbtc, you get slightly lower number but you see the tears that central banks are seriously working on this issue? Switzerland has a little bit of different perspective on this so we are not working on something for the normal payment system. Not only retail City. See our point of view is that we look

from the infrastructure side at it and twist infrastructure and exchange takes quite a long history of innovative disruption and the lost time if you're not the first but when you do it then we do it properly and completely like for instance, the payment system before not the first to have a real time payment system for commercial Banks. You were not the first time, the first ones to have a close settlement system, but we were the first time to half at the same time and roast and a real time satellite system. The same with the stock exchange. You're not the first

one to go online to have electronic trading but we were the first ones in the mid-nineties to have the full value change electronic from the trade that processing. At the settlement that this year is not the picture of the, after conference party of about, this is the picture. Actually, the last day of trading at the Street Stock Exchange when they moved from the floor, to a fully electronic system. I don't know how many people realize that their jobs are at stake here, but they never seem to be quite happy about it. States that the Swiss

exchange fix is not working on, but will be again, not the first exchange that has something to do with blockchain, but it will be the first fully regulated official end to end blockchain exchange. So the trading the settlement into custody service for digital assets in the future. Phones will be settled on DLT technology. So that's what six is working on is called sdx exchange and their plan is to actually go life and of I see, you're so, we will see what Steve, that's really doable, but

they have quite an ambitious program. The question then comes up of course, you have no always. Did she left it on the BLT on the blockchain? But I'm about to do fix the cash flag, with the money sides. And things are exactly as we talked about that in the beginning. And we decided that as part of the proof-of-concept, ultimate this date, you only to be explore with them the option that we will provide the Swiss franc token. 40s blockchain that they have real central bank money about count counterparty risk on the blockchain. But basically, there are three things that are being done

right now. The one is that ftxs? We go life, but are you guys are ready or not? So they're working on their own ethics calling civil, but they basically do, is they, they produce a stable car in the way they will do it. You have at the Swiss National Bank at the Central Bank level, you have two different banks, have their account. Tell me about the space payment system sick. The banks have their settlement accounts there and Essex will also have an account there and basically on the blockchain of the space station exchange, they will just have had their own molds and they will

talk nice for the member banks, the money and put that on the blockchain, then basically have a stable, but this is exactly the problem. Then did I mention in the beginning? You have a counterparty risk involved. So if ethics, for instance would go bankrupt, you have a problem with your money now that the solution and that's what usually central banks prefer. Especially if you have to thin acrylic important infrastructure is that settlement established central bank money. That doesn't involve counterparty risk at this. I think the exciting project that we are working on at

that would look like this. That we would actually be the note on that block chain and tokenize, the money for their individual Banks. From their accounts and then they can pay and settle their payments on the blockchain with tokenized Swiss franc provided by the Swiss, Swiss Central Bank and Trust to also see whether this is really more efficient. We also do not approve concept, everything. Okay, how would you look like if we just combine the Two Worlds, we do not provide a native token for the blockchain. Not as

twitch Prime tokens but it just kind of hook up the blockchain with our settlement system so that that is actually do see whether we really get more efficiency if they do it. But if you do everything on the blockchain and this is a little bit from the experience to some other central banks Bank of Canada, monetary authority of Singapore. They try to have this middle aorta about to be called here to stick. The payments between the banks, had to put that on the blockchain and they actually found out that it Not more efficient than the current system at least as long as you

not find some way to make a very clever use of smart contracts and maybe all the wraps that you build on it. But the problem before, so maybe not the problem to go to thing is that the current payment infrastructure in many countries is extremely efficient payment. Among the banks are not so much payments at for households and Retail and still be able to do that. This proof-of-concept just to see whether we. We got the efficiency gains Steffi. I look forward to. So as I said, the plan is the ethics in testicle life, end of this year, we are only

work on the proof-of-concept so it's not really clear yet. Whether we go go life at the same time by Flame or not but still has to be decided between the border of the central bank. If we do not go live at the same time, they will start with their own a stable time, their private as they spawn point, but we will clearly see. This works out and I think it's relevant experiment. Also for other central banks, to the way you look at it from the infrastructure kind of English, doctor is being billed out there with blockchain and then always the question comes up

if you trade on these blockchains, how do you pay on this block chains? And how do you get money on the blockchain? And what type of money do you want to have on the blockchain? Thank you very much.

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