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20 septembre 2019

The digital franc: a great opportunity for Switzerland

Jan Brzezek

Jan Brzezek

CEO, fondateur et membre du conseil d'administration de Crypto Finance AG

A propos de l'auteur

This article is from our new magazine Building Blocks. The article was written by our CEO Jan Brzezek and also was published in the NZZ, a Swiss newspaper, in German.

To receive your copy of the complete Building Blocks magazine, please register at the bottom of the page.

The digital franc: a great opportunity for Switzerland

The tokenised economy on the blockchain needs a digital currency that is as stable and secure as the Swiss franc to build confidence and trust.

Although Switzerland is a small country, the Swiss franc is one of the most coveted currencies internationally. Given this, what could be more logical than taking the franc online? Digital money feels almost inevitable. Online, traditional money has proven to be too slow and, to a certain extent, too dumb. Digital “smart contracts” will improve and speed up the exchange process, in the same way that email came to replace sending physical letters. Emails can now be sent quickly, be encrypted, and include attachments. Figuratively speaking, it is impossible to stick a contract or insurance policy in the form of a post-it on a banknote or bank transfer so that it cannot be removed or altered. This is where tokenisation comes in: in the same way that individual genes make up the genome, all assets are on the blockchain as tokens, including assets such as real estate, art, and cars.

To date, primarily private companies have been involved in the development of this second generation of digital money. Facebook and others, too, have recognised the potential of digital currencies, and are now quickly forging ahead. Facebook and their partners announced the “Libra”: a digital currency entirely backed by “real” money, which could be available to their more than two billion (!) users by mid-2020. This poses a great challenge to the financial system, not to speak of the central banks, who are responsible for the issuance and the stability of money. One could even go so far as to call it a threat to the state monopoly on money. The internet is not waiting for central banks and regulatory bodies to clarify who and how the Libra Association, or some other digital currency, will be regulated.

In my opinion, thanks to the use of state-of-the-art technologies, Switzerland now has the unique opportunity to establish itself as the world’s leading financial centre for digital financial services. After all, digital money is the missing building block on the path to the complete digitisation of the economy.

Switzerland meets all the prerequisites. First, Switzerland is known around the world as a financially stable, law abiding, and economically innovative country. Second, for many years now, the Swiss financial regulatory authority has been devoted to understanding this technology. Only a few regulators on the planet are as well informed. Once the legislative amendments currently pending review go through, they will give Switzerland the legal security needed to become a leading digital financial centre. This is similar to the situation in Luxembourg, when the introduction of a new fund law with new tax advantages helped establish the country’s international success. Third, the Crypto Valley in Zug has been a leader since the start and has the needed reputation. The Crypto Valley may not have the size of Silicon Valley, but when it comes to digital currencies, there is hardly another country in the world able to keep up with the financial market infrastructure, crypto knowledge, and crypto-friendly regulations that Switzerland has established. The fact that the Libra Association was set up in Geneva is the best proof of this.

The call for an e-franc is now mainly up to the Swiss National Bank (SNB). It will not decide on this easily, though, due to a healthy dose of conservatism on the part of the central banks, and because the question remains how to launch an e-franc. Without delving too deeply into the theory of money, it makes a difference if e-francs are issued by the SNB directly (as part of the money supply M0), or if commercial banks were allowed to issue a certain amount of e-francs secured by “real” Swiss francs (the money supply M1 – M3). In the first scenario, it would almost be possible to dispense with the commercial banks completely, but this would certainly not be in the interest of system stability. The second scenario would come quite close to the Libra construction with the backing of “real” money, the difference being that a true central bank would be behind it, ensuring that any concerns about the regulation and reputation of the issuer would be dealt with in a more regulated fashion.

If politics, the SNB, the SIX Swiss Exchange, commercial banks, and private companies work together towards the same vision despite the risks, we will effectively strengthen Switzerland’s long-term outlook as a financial hub. And Swiss quality always counts – even online.

 

 

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