Though cryptocurrencies and cryptocurrency-based tokens “are more like speculative investment instruments” and are unlikely to reach mainstream adoption, stablecoins, which are pegged to stable, official currencies, “hold greater promise for widespread deployment as a payment instrument and store of value,” according to Thomas Jordan, chairman of the governing board of the Swiss National Bank (SNB).
At the 30th anniversary of the University of Basel’s Faculty of Business and Economics (WWZ) and the Vereinigung Basler Ökonomen (VBÖ) on September 5, 2019, Jordan gave a speech about the rise of digital “token money” influenced by cryptocurrencies like bitcoin, noting the surge of stablecoins over the past few years and the entrance of corporate players like Facebook into the space.
“Crypto tokens do not possess the characteristics of ‘good’ money, which is typically stable over time, is broadly accepted, and enables efficient payments,” Jordan said. “Given these parameters, it seems unlikely that crypto tokens will be widely used as money in Switzerland.”
Stablecoins, on the other hand, are backed by real assets and represent and could reach mainstream acceptance, Jordan said. For this reason, regulators must analyze and classify stablecoins rigorously from a regulatory and monetary policy perspective.
“Stablecoins present many regulatory challenges, which in turn require close cooperation between the various authorities,” Jordan said. “This is particularly true of cross-border projects like Libra.”
“It is essential that we are clear about the economic function of stablecoins. Depending on how they are structured, stablecoins may have the characteristics of a bank deposit or a privately issued banknote. This would be the case for the Swiss franc stablecoin, were it to be used widely for cashless payments or as a store of value, as it would effectively become a substitute for Swiss franc bank deposits.”
In June, Facebook unveiled the Libra project, a stablecoin initiative for which the social media giant has received backing from the likes of Visa, Mastercard, PayPal, Uber, Spotify and Vodafone. Libra aims to develop a global cryptocurrency that would be used to purchase products, send money internationally and make donations, and is overseen by the Libra Association, a non-project organization based in Switzerland.
Jordan’s statements echo a warning issued by the Swiss Financial Market Supervisory Authority (FINMA) last week in which the regulator said that the proposed Libra payments system could face strict rules that typically apply to banks on top of tough anti-money laundering laws, reports Reuters.
FINMA said the project would be more than just a global payments system and would therefore need to comply with extra requirements in terms of liquidity and capital allocations for risk, as well as management of reserves, among others.
Libra is just one of the many stablecoin projects that have emerged over the past years. Since the beginning of 2017, over 200 projects have been announced, but only 30% are yet to be publicly launched, according to Blockdata. Currently, some 66 public and active stablecoins are in circulation with the most popular ones being USD-backed Tether, Coinbase’s USDCoin and Gemini’s Gemini Dollar.
In Switzerland, Swiss Crypto Tokens, a subsidiary of Bitcoin Suisse and part of the Bitcoin Suisse Group, provides the CryptoFranc (XCHF), a stablecoin pegged to the CHF issued and transferable on the Ethereum blockchain. And SIX, the country’s national stock exchange group, is reportedly working on its creating its own stablecoin.
“The SNB is following developments closely, and is actively involved in the debate, not least through its future participation in the Bank of International Settlement (BIS) Innovation Hub,” Jordan concluded.
Featured image credit: Thomas Jordan, chairman of the governing board of the Swiss National Bank (SNB), image via https://www.snb.ch
