Swiss Banks Collaborate to Explore Digital Swiss Franc
Leading Swiss banks—PostFinance, UBS, and Sygnum—have joined forces to explore the feasibility of a digital Swiss Franc. This initiative, spearheaded by the Swiss Bankers Association (SBVg), aims to modernize Switzerland’s financial system and enhance its competitiveness in the digital economy.
Blockchain-Based Digital Franc
The project, dubbed "Digital Currencies," has garnered support from major Swiss banks that have signed a memorandum of understanding (MoU) to work together on a proof of concept (PoC) for a digital franc deposit token.
A deposit token, according to the MoU, is a blockchain-based payment method reflecting traditional bank deposits. It enables bank customers to perform transactions on a new and innovative payment platform, utilizing distributed ledger technology (DLT) and smart contracts. Initially, the PoC will focus on two use cases: simple payments between participating banks and delivery versus payment transactions with escrow functions.
If successful, the Swiss Bankers Association believes the PoC could pave the way for the widespread adoption of a digital Swiss franc, offering benefits like faster and cheaper transactions, enhanced security, and new financial products and services.
A Collective Effort
The MoU between Swiss banks seeks to coordinate efforts as part of the Swiss Bankers Association’s work on digital currencies.
Firstly, the banks aim to "design, execute, and evaluate the initial deposit token PoC." Secondly, they will collaborate to address any legal or operational challenges that may arise during the project. Additionally, they will assess the potential benefits and challenges of implementing a digital Swiss franc nationwide, taking into account "technical, legal, economic, risk, and operational factors."
The deposit token PoC project is expected to be completed by 2025.
Blockchain-Powered Banking
Essentially, PostFinance, UBS, and Sygnum are testing a blockchain-based system to see if they can migrate customer deposits, which are fundamental to banking operations, to a digital platform.
According to Remo Nyffenegger, an economist at the University of Basel, this marks a more radical shift than Swiss cantonal banks allowing customers to invest in Bitcoin (BTC) or other digital assets. Instead, it signifies that banks are adopting the underlying technology or potentially even building services directly on public blockchains like Ethereum.
"As far as I know, this is the first time that deposit money has been issued directly on a blockchain. This is a very innovative move by Swiss banks," said Nyffenegger. However, he also highlighted significant regulatory hurdles, such as determining rules for cross-border usage and the required backing of assets. "If they opt for a public blockchain, as their whitepaper suggests, this would be truly revolutionary. Transactions on public blockchains are transparent to everyone."
Swiss Banks Embrace Crypto Trading
In addition to the digital franc initiative, Swiss banks are also actively participating in cryptocurrency trading.
The Zürcher Kantonalbank (ZKB), one of Switzerland's largest banks, is the latest financial institution to offer cryptocurrency trading to its clients. Since September 4, ZKB customers have been able to trade Bitcoin and Ether (ETH) 24/7 through the ZKB eBanking and ZKB Mobile Banking platforms.
In recent months, several other Swiss cantonal banks, including Zuger Kantonalbank, St. Galler Kantonalbank, and Luzerner Kantonalbank, have also successfully launched cryptocurrency services.
