SNB to issue cryptocurrency? EUR CHF rate stable

SNB to issue cryptocurrency? EUR CHF rate stable

27 June 2019

The operator of the Swiss stock exchange, SIX Group revealed it would like to see the Swiss National Bank issuing some form of cryptocurrency that would be used to settle payments on SIX’s new digital assets platform. SIX is about to launch the platform and is looking for a mean of settling transactions on it.

New trading platform

Swiss stock exchange operator SIX Group, that is owned by the consortium of banks, is about to launch a new digital assets trading platform called SDX. It will be launched early in 2020 and access to it will be limited to professional and qualified investors.  The platform will operate like any trading area – but will trade only digital versions of well-known financial assets like bonds, stocks and other securities. Transactions on it will focus on swapping cash for digital tokens. For instance investors will be able to sell euros or sell francs and buy digital assets. Token bought could be later used as payment for securities obtained at the Swiss stock exchange or again redeemed for cash, so investors could buy euros or buy francs for it if they need to. Such digital token that has support of traditional currencies is known as stablecoin. The peg connecting the digital token to a conventional currency is serving as a reduction for price volatility, for which cryptocurrencies are widely known.

Asking the SNB for help

As the SIX Group revealed the plan to use digital tokens on its forthcoming trading platform, it has at the same time came forward with a wish that the Swiss Central Bank would be the one to issue the cryptocurrency. It is a bold thing to ask for, as agreeing to issue stablecoin would mark for the SNB a sharp departure from its cautious position towards digital assets. As the SIX group sees it, the tokenized CHF would be pegged at the exchange rate 1:1 with the traditional CHF at all the time. Member banks of SDX would be able to settle any obligations or trades against the digital version of CHF. That is why, to make it easier, SDX would accept payments in the traditional CHF from member banks in central bank money and will issue for them equivalent of those in the digitalized CHF tokens on SDX. According to online page swissinfo, the SNB is holding talks with the SIX Groups on what are the options of settling the cash side of transaction on the forthcoming SDX platform. However, it has made no final decision.

The SNB is cautious

So far the SNB has remained cautious about digital currencies and has not shown much interest in issuing a stablecoin. When in march the SNB board members Andréa Maechler and Thomas Moser were asked if central banks should offer digital tokens for some of Distributed Ledger Technology, like blockchain, applications, for instance settlement of transactions or securities, they answered that even though innovation is important, it shall not come at the expense of confidence or stability in the existing payment system. The Swiss central bank is not keen on the idea of issuing the tokenized version of the Swiss franc to the public. However the proposal by the SIX group is a different matter, as the SDX stablecoin would be applicable to transaction between banks on the market. Settling operations with stablecoin would eliminate any risks, as the digital currency will be pegged to the traditional CHF. They will be able to smoothly conduct digital securities transactions without being worried that redeeming tokens would leave them without cash. Therefore there will be no need to save aside surplus cash for covering potential defaults.

News on the Swiss franc exchange rate

The euro franc exchange rate moved this week in the range around 1.11 after the EUR CHF exchange rate fell sharply last week. The exchange rate is therefore at its lowest level for a year, which benefits mainly cross-border commuters, as they can currently buy cheap euro. This is mainly due to political tensions. These are now also present on the line Switzerland EU. The negotiations on the framework agreement between Switzerland and the EU have stalled, whereupon the EU has threatened with the end of stock exchange equivalency. Now, Ignazio Cassis has announced today that the expiration of stock market equivalency is fact. It is still unclear how the Swiss franc will react.