In Switzerland, the introduction of a digital Swiss franc could further boost the local digital asset industry, foster innovation in the domestic market and support the Swiss franc as a means of payment, the Swiss Bankers Association (SBA), the country’s primary industry group representing the Swiss banking sector, says in a new whitepaper.

The paper, released on March 13, 2023, makes a case for the introduction of a digital representation of the national currency, arguing that a digital Swiss franc would be an important contribution to Switzerland’s competitiveness and innovative power, and would help the nation bolster its sovereignty.

A stablecoin supported by the Swiss banking industry

A number of factors are contributing to this belief. First, central banks from around the world are actively exploring the merits of central bank digital currencies (CBDCs); second, consumers are embracing digital payments; and third, regulators are accelerating efforts to introduce rules that cater to the thriving cryptocurrency industry, the trade group says.

Against this backdrop and considering developments such as the tokenization of assets and the emergence of decentralized finance (DeFi) applications, the SBA says it is working on the concept of a digital currency in the form of tokenized deposits.

This system, referred to as a “deposit token”, would be based on public blockchain technology and would come with smart contract features. If carefully designed, it could allow for a wide range of new applications, reduce risks, increase efficiency, and open up whole new areas of business, the group says.

Possible applications highlighted in the report include its use as a substitute to private stablecoins such as USD Coin for the buying and selling tokenized assets, more efficient and cost-effective peer-to-peer payments, as well as its use in transactions executed by machines within the Internet-of-Things, on Web3 and in the metaverse.

A deposit token would also lay the foundations for a distributed ledger technology (DLT)-based financial ecosystem, the report says, enhancing the maturity of this ecosystem, bringing about new applications and making it more attractive for Swiss users by reducing entry barriers and supporting financial transactions in their reference currency.

A currency for the new digital economy

CBDCs have been a hot topic among governments over the past couple of years. In Switzerland, the Swiss National Bank (SNB) has been involved in a number of CBDC projects with the Bank for International Settlements (BIS), including Project Helvetia, which focuses on tokenized asset settlement in wholesale CBDC (wCBDC); Project Helvetia, which focuses on the integration of a CBDC into a financial market infrastructure for the custody and transfer of tokenized securities based on DLT; and Project Jura, which explored settling foreign exchange FX transactions in euro and Swiss franc wCBDCs.

Though the Swiss Federal Council and the SNB have both shared that there is no urgent need to introduce a digital Swiss franc at the time being, they have however acknowledged the potential of a CBDC for innovation in digital payments.

At the same time, regulators are increasing their focus on digital assets after a series of high-profile collapses, that included FTX, Terra and Three Arrows Capital, sent shockwaves through the industry.

Just last month, the British finance ministry laid out its first set of rules to regulate digital assets, proposing to bring stablecoins as well as centralized cryptocurrency exchanges into the regulatory perimeter.

In the European Union (EU), the Markets in Crypto-Assets Regulation (MiCA), which is expected to go into effect in 2024, will introduce a common licensing regime for crypto wallets and exchanges to operate across the EU and will apply stricter rules than those currently in place in some European countries.

Booming interest in digital currencies comes at a time when usage of digital payments is rising rapidly amid changing consumer behavior and preferences. According to French information technology and consulting firm Capgemini, non-cash transaction volume nearly doubled between 2016 and 2020, soaring from just 480 billion transactions in 2016 to more than 845 billion in 2020.

Adoption of digital payments among consumers and businesses is set to continue its upward trend, with volumes projected to record a 16.5% annual growth rate between 2021 and 2026. This growth will be driven by infrastructure improvements, market maturity and rising demand from customers for convenient, tech-enabled solutions, the firm says.