'New Risks': Swiss Government Skeptical on Central Bank Digital Currency

A digital Swiss franc would do more harm than good, according to the nation's government.

Having been requested by the Swiss parliament to examine the potential of creating a central bank digital currency (CBDC), the government concluded that it would bring risks of financial stability, Reuters reports on Friday.

In a statement following a cabinet meeting, the government said: “Universally accessible central bank digital currency would bring no additional benefits for Switzerland at present. Instead, it would give rise to new risks, especially with regard to financial stability.”

Other nations' central banks are already actively researching the potential of CBDCs with China recently reported to be planning trials of its digital yuan starting early next year. Sweden too, plans to issue its CBDC in the near to medium term, the government said in the report.

And while digital currencies are touted as having potential to improve payments and strengthen monetary policy while helping reduce financial crime, the cabinet said the real-world benefits may not meet expectations. Further, the negative repercussions of an e-franc could be extensive.

However, the government did say that a role for a digital franc that was confined to use among financial institutions is "a more promising strategy."

“This would not have the same far-reaching and fundamental implications as universally accessible central bank digital currency," the cabinet said. A wholesale digital franc from the central bank "could possibly help to enhance efficiency in the trading, settlement and management of securities.”

Incoming European Central Bank President Christine Lagarde said on Thursday said her institution should be “ahead of the curve” when it comes to CBDCs, as per another Reuters report.

However, before addressing any technical aspects, the ECB needs to be clear on the objectives of a digital euro, she said.

The Swiss government has taken a relatively cryptocurrency and blockchain-friendly stance in recent years, with its canton of Zug dubbed "Crypto Valley" due to the large number of industry startups that have made it their home. The Facebook-led Libra stablecoin project – the announcement of which has shaken central banks into looking more seriously at building their own digital currencies – is also based in Geneva.

Late in November, the Swiss federal government said it had revised a plan aimed to remove legal hurdles still holding up innovation based on blockchain and would present it to parliament soon.