SNB’s chairman speaks about stable coin

SNB’s stance on stable coins

Thomas Jordan was speaking in Basel on Thursday, September 5th and he made various references to cryptocurrencies market. He specifically called out stable coins, cryptocurrencies that have its exchange rate connected to this of FIAT currencies, for instance euros, Swiss francs, US dollars etc. Stable coins are known for having less volatility in prices due to being pegged to FIAT currencies. Jordan is not entirely against stable coins and he sees no issues in such currencies operating in Switzerland and being backed by CHF. As he put it: “As long as prices, wages and loans are set in Swiss francs, the SNB can influence incentives for savers and borrowers via its monetary policy and thus ensure price stability over the medium term”. What causes concerns to him and others in the SNB are stable coins pegged to exchange rates of foreign currencies that would like to establish themselves in Switzerland, as this would mean that: “Effectiveness of our monetary policy could be impaired”. In other words, Jordan is worried that the SNB would not be able to provide price stability of CHF, should such stable coin become popular.

Did he mean Libra?

Even though he didn’t not named Libra, the crypto project of Facebook that will be launched next year and would introduce stable coin pegged to a basket of various FIAT currencies, it might be assumed he aimed his comment at it to some extent. The Libra project has alarmed many watchdogs and politicians around the globe. Recently there was a delegation of US Congressmen that visited Switzerland to share their views about whether Libra could destabilize the monetary system globally.

Swiss franc in digital version?

During the same speech Jordan spoke about the possibility of launching by the SNB a stable coin pegged in exchange rate to Swiss franc. Such project isn’t likely to be introduced any time soon – at least for the general population. Jordan claimed such coin can have advantages if issued solely to bands and other financial entities. Stable coins already exist in Switzerland – a crypto bank Sygnum, that recently got its FINMA license, has one used as a method of payment in its system and Swiss Stock Exchange has asked the SNB to produce a stable coin for its project of digital assets’ platform.

Concerns of the SNB

Jordan is resistant toward giving a stable coin for general use of individuals or companies. As he stated: “Broad access to digital central bank money would call the existing two-tier banking system into question”. It would further mean, as Jordan thinks, that the SNB would start to act like a commercial bank, and the wide access to such digital Swiss franc could result in financial destabilization. It could be easy to switch over from bank deposits to digital central bank money – easier than changing them to physical banknotes. In time of crisis, such opportunity may increase the risk of a bank run. Even though Jordan is skeptical, he stated that more research needs to be done to assess whether a digital Swiss franc could be a good idea and what benefits it could bring.