Central banks around the world are abuzz with activity. Many monetary authorities are experimenting with their own digital currencies. A team of banking and FinTech experts is working on a project for a Swiss National Bank (SNAB), taking a private sector approach with a "synthetic rCBDC".
A central bank digital currency (CBDC) is a digital form of a country's fiat currency, issued and regulated by the central bank. Unlike cryptocurrencies, CBDCs are government-backed and have the same legal status as physical currencies. The main risk with CBDCs is the significant loss of privacy, as all transactions can be closely monitored by central banks. It's no coincidence that retail CBDCs are particularly advanced in China. A quasi-CBDC could counteract these risks. At least that is the opinion of the project team in an interview with the financial publication tippinpoint.
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Customers deposit directly at the SNB
In general, a narrow bank is a financial institution that accepts customer deposits but invests only in safe, short-term government securities. This reduces the often delicate credit risk and is intended to provide a risk-free place for savings. In the event of the bank's insolvency, deposits would be safe because all funds are held by the central bank. The Swiss Narrow Bank project aims to use this approach to pass on the central bank's interest rates to customers with minimal risk. It would refrain from any kind of investment and plans to deposit public deposits 1:1 in cash with the Swiss National Bank (SNB).
The key interest rate of 1.5%, less a cost share, would be paid directly into the current accounts. What the project still lacks is a banking license and funding for operations. The license alone costs CHF 15-20 million and takes a year to obtain. However, the Swiss Financial Market Supervisory Authority (FINMA) is generally positive about the project, writes tippinpoint.
Central bank money with blockchain functionality
The new financial institution could offer more than just "boring" banking services. Designated CEO Philipp Dettwiler, who previously worked at AMINA Bank and in other FinTech positions, describes the project as a "synthetic CBDC". Integrations are planned both on traditional financial rails and via the blockchain. The future bank could act as an oracle. As a result, a private offering of a digital central bank currency would be available, but without the privacy risks, as all customer funds are held in the single SNAB account at the national bank.
Specifically, the financial institution can represent information about cash reserves on the blockchain ("on-chain"). This allows integration with self-executing protocols ("smart contracts") similar to traditional stablecoins. However, SNAB also pays interest, has all funds permanently held at the SNB, and is fully regulated in Switzerland. However, it lacks some flexibility. All users must be customers of the Swiss Narrow Bank project, which complicates its use as a blockchain payment method.
"Stablecoins offer speed, efficiency and security thanks to blockchain technology, but our synthetic retail CBDC goes further: fair interest rates, secure storage at the SNB and programmable settlement via smart contracts - the only clean, regulated solution for Switzerland, Web3-ready and without the risks of traditional banking." - SNAB CEO-designate Philipp Dettwiler
