New Horizons in Central Banking
Swiss National Bank (SNB) has teamed up with the Bank for International Settlements (BIS) to set up an Innovation Hub in Switzerland. This strategic partnership promises to explore cutting-edge financial technologies that could redefine how central banks operate.
Two Pioneering Projects
Unveiled on October 8, this agreement highlights the launch of three innovation hubs located in Switzerland, Hong Kong, and Singapore. The focus of the Swiss hub will be two major research initiatives:
- Integration of Central Bank Digital Currencies (CBDCs): This project aims to explore how CBDCs can function within a distributed ledger technology (DLT) framework, with the collaboration of SIX Group, a major Swiss financial services provider.
- Tracking Electronic Market Trends: This initiative will analyze the swift-moving landscape of electronic markets and the increased demands these trends place on central banks.
Technological Insights as Central Bankers’ New Best Friends
The main goal of this Innovation Hub is to assess and develop insights into critical tech trends impacting central banks. It’s set to become a networking hub for central bank innovators. As Thomas Jordan, SNB’s governing board chairman, stated, watching the financial sector’s digital transformation closely is paramount.
Stablecoins vs. CBDCs: A Delicate Balance
In recent discussions, Jordan voiced concerns that stablecoins, especially those pegged to foreign currencies, might disrupt Switzerland’s monetary policy. There’s alarm over the potential for a CBDC to stir financial instability—namely, by tempting folks to withdraw funds quickly in a bank run. Sounds like a hot potato, doesn’t it?
BIS’s Mixed Feelings about CBDCs
Echoing similar sentiments, BIS’s General Manager Agustin Carstens has also shown skepticism. His contention? CBDCs could speedily siphon money from commercial banks to central banks, causing a ruckus in financial stability. So, while innovation is the name of the game, it seems caution might just be the motto.
