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Digital Swiss franc – not intended for payment

The digital Swiss franc is on its way. The Swiss National Bank has secured the name “e-franc. The Helvetia and Jura projects are an important foundation. But consumers will not be able to pay with an e-franc until further notice. We explain why this is the case.

Digitization does not stop at traditional currencies. The spread of digital means of payment offers consumers and customers of banks an additional benefit. However, digital currencies interact directly with payment transactions. This raises important questions – for banks, authorities, and consumers alike. This is why the Swiss Bankers Association “Swiss Banking” is also in demand when it comes to the launch of a digital Swiss franc. “We deal with possible implications of digital currencies and follow the rapid upheaval of the payment system,” writes “Swiss Banking” on its website.

Start of the Helvetia project

And things are indeed happening: in 2020, the “Helvetia” project was launched under the auspices of the Swiss National Bank (SNB). The focus was on the acquisition of tokenized securities. A digital franc was used as a means of payment. The transactions were processed via the digital exchange “SIX Digital Exchange” (SDX), which is still under construction. An important project result is that the settlement of tokenized assets with a digital currency works with sufficient efficiency, at least within the scope of the designed project.

First test of the digital Swiss franc

The “Jura” project initiated in 2021 builds on Helvetia’s findings. However, the focus here is even more international, as Sylvie Goulard, vice president of the French National Bank, which is involved in the project, points out: “We are very pleased to launch an important experiment in cross-border settlement together with the Swiss National Bank and the BIS Innovation Hub under the name Jura.” The project name refers to the mountain range located between Switzerland and France. Credit transactions will be settled exclusively with digital currencies. In this context, the parties involved are testing the digital franc (“e-franc”) and the digital euro for the first time in the context of international payments. Numerous partners are involved in the project. Initially, these are a number of public institutions. The main players are:

  • BdF Banque de France (National Bank of France)
  • BIS (Bank for International Settlements)
  • SNB (Swiss National Bank)

In addition, private sector companies also play an important role. These include:

  • Credit Suisse (major Swiss bank)
  • Naxitis (investment bank of the French savings and cooperative banks)
  • R3 (blockchain software developer)
  • SIX Digital Exchange (digital exchange)
  • UBS (major Swiss bank)

SNB secured naming rights

The SNB obviously has a lot of plans for the digital Swiss franc. In any case, the institution has secured the corresponding naming rights at the end of 2020. At the Swiss Patent Office, the SNB has registered not only the term “digital franc” and “digital Swiss franc” but also “e-franc” as trademarks. The trademark protection is to extend to a total of more than a dozen versions in German, English, French and Italian.

Prof. Dr. Philipp Sandner, Professor at the Frankfurt School of Finance and Management

For us humans, a tokenized currency brings little benefit; it will be important for the machines.

Prof. Der. Philipp Sandner, professor at the Frankfurt School of Finance and Management

Can I pay with the e-franc?

The Swiss government wants to drive digitalization while ensuring value creation, growth and Wolstand. To be sure, the digital franc already exists in technical terms as part of the practical tests outlined. But notes and coins are likely to remain in use as the primary means of payment. Swiss citizens will not be able to pay with the digital Swiss franc. This is because it is a special form of digital central bank money. Called “Central Bank Digital Currency” or CBD for short. The so-called “Wholesales CBDC” is only used to process payment transactions from financial institutions such as banks. The aim is to increase the speed and efficiency of transactions. However, consumers cannot use this “Wholesales CBDC” and henceforth cannot pay with the digital Swiss franc.

Why don’t Swiss people receive e-francs?

Banking institutions like Sygnum or Märki Baumann are in the token and crypto business in Switzerland. There are promising projects with the GNU Thaler. Nevertheless, the introduction of an e-franc is delayed – payment with digital francs seems a long way off. The “franc CBDC” or “wholesale CBDC” is not intended for citizens. But is it at least an important step toward the e-franc for Swiss consumers? The answer to this question is likely to disappoint fans of a possible “retail CBDC” – i.e. a digital currency that can be used by the masses. That’s because, according to Andréa Maechler, director of the SNB, the introduction of a digital franc usable by consumers is “not planned” by the Swiss National Bank. She stated this to media

Threat to financial stability

To justify this, experts at the SNB point to a possible threat to financial stability that could emanate from the digital currency. In addition, the competitiveness of the Swiss economy could suffer as a result of a tokenized digital currency. Some experts even put the possible benefits for consumers into perspective to coincide with i. For example, Philipp Sandner, a professor at the Frankfurt School of Finance and Management, explains, “For us humans, a tokenized currency brings little benefit; it will be important for the machines.”

Credit card and Swiss digital money.
Consumers in Switzerland cannot yet pay with the digital franc.

Is the “wholesale CBDC” coming, then?

The Jura and Helvetia projects are designed to prove the feasibility of the “Wholesale CBDC.” The positive test results increase the likelihood that such a rollout will happen at some point. However, this will not be a foregone conclusion, as Andréa Maechler emphasized to the media: “The tests do not mean that the SNB will now issue its own digital currency.” According to the SNB director, the tests are merely “exploratory in nature.”

CBCDs are the trend

Switzerland is far from the only country that is currently looking more closely at digital central bank currencies. Almost nine out of ten of the 65 national banks surveyed by the Bank for International Settlements (BIS) are said to be currently engaged in projects or studies on this topic. That’s a hefty increase of about a third from the last survey, which dates back to 2017. However, six out of ten survey participants see it exactly like the SNB: They consider the introduction of the e-franc unlikely in the short or even medium term.

Other countries progressive with digital currency

Some countries have already issued a digital currency for the population or are at least planning to do so in the near future. America is planning the digital dollar. Not far off the coast of Florida, something is also happening: The 389,000 residents of the Bahamas, for example, can make digital purchases with the Sand Dollar. Issued by the Central Bank of the Bahamas, the digital currency is intended to enable more people in the underdeveloped nation to use financial services. But in China, too, developments for a digital currency (Digital Currency Electronic Payment), which began in 2014, are well advanced. Currently, several regions are already testing the digital yuan. Experts believe a nationwide launch as early as 2022 is possible. However, the example of Sweden shows potential problems with the introduction of digital currencies. Here, the Riksbank had already made the creation of the so-called e-krona possible in principle three years ago. But political and technical difficulties have slowed down the project.

Digital innovation is undisputed

Despite critical voices, the Swiss Bankers Association “Swiss Banking” does not dispute that the future is digital. “Digital innovation is driving the financial centers in Singapore and in Switzerland,” says August Benz, head of private banking and asset management at Swiss Banking. “In the future, digital currencies and other electronic payment methods will be important components of the Digital Economy,” the website continues. It is not a question of if, but when and in what form they will be introduced and widely used, it adds. After all, “They offer clear social and economic added value.” This probably also means a Swiss digital franc. A modified payment traffic will have to offer channel-independent and cross-border instant payment options in the future, he said.

When will the digital euro arrive?

Actually, the digital euro was supposed to start as early as 2022. But many experts do not expect it to be introduced before 2026. As a virtual construct, it is intended to enable payments in real time. Consumers will benefit from a higher level of security - especially for large transaction sums. As things stand today, however, users need an account at the central bank. Commercial banks are to provide assistance here Further information on the digital euro.

FAQ – Frequently asked questions

What is the function of the SNB?

The abbreviation SNB refers to the Swiss National Bank. Founded in 1906, the institute is an independent central bank responsible for Switzerland’s monetary and currency policy. Therefore, the introduction of digital currencies also falls within its remit. The SNB should always act in the interest of Switzerland.

Why don’t I benefit from the e-franc?

The e-franc, which was created in its current form for test purposes, was developed specifically for financial institutions. These are to use it to process payment transactions more efficiently. Consumers cannot use this form of CBDC to make purchases or payments. That is why they are denied the potential benefits of the digital currency.

What does CBDC mean?

The abbreviation CBDC stands for Central Bank Digital Currency. This is digital central bank money. A distinction is made between wholesale CBDC and retail CDBC. The former are used by financial institutions for payment processing. Consumers could also use the latter for shopping and payment.

Thomas Grether

Journalist | Editor | Entrepreneur & Environmental Scientist.
Main focus: Tokenization | Digital Transformation Processes in Companies | Internet and Web Publishing | Environment

Thomas Grether

Journalist | Redakteur | Unternehmer & Umweltwissenschaftler
Schwerpunkte: Tokenisierung | Digitale Transformationsprozesse in Firmen | Internet und Webpublishing | Umwelt