The President of Swiss National Bank (SNB) Thomas Jordan, in a statement said that stablecoins, backed by foreign currencies could seriously damage and hamper a country’s monetary policy in many cases. The remarks came during his speech at a University of Basel on 5th September and the statement is posted on the bank’s website.
While talking to the students, Jordan said that he is convinced that cryptocurrencies should be used in a limited manner, only as stores of value and units of accounts because they are fluctuating continuously, thus should only be used in a limited number of cases and said:
Crypto tokens are more like speculative investment instruments than ‘good’ money in terms of their characteristics. Users typically describe money as ‘good’ if it has a stable value over time, is broadly accepted, and enables efficient payments. Given these parameters, it seems unlikely that crypto tokens will be widely used as money in Switzerland.
In his statement, Jordan highlighted several times that he is not against the use of stablecoins, a stable coin pegged to Swiss Franc if used in Switzerland, would be a good idea. However, he showed concerns about the use of stablecoins pegged to other currencies and how it may affect the monetary policy of Switzerland. He said:
If stablecoins pegged to foreign currencies were to establish themselves in Switzerland, the effectiveness of our monetary policy could be impaired.
Jordan was also quick to talk about Facebook’s Libra project during the speech and talked how Libra is one such stablecoin that will be pegged to the U.S. dollar. He added that even though the creators of Libra claim that the currency is backed by a reserve of assets, there is no guarantee that the asset will be converted into the currency in the basket at any time.
He talked about how the issuer of currencies should be considered as a bank, as they are providing the same service and should also be subjected to the same rules and he said:
If the economic function of stablecoins is comparable to that of bank deposits, their issuers should have to play by the same rules as banks. The principle of regulating by activity rather than by technology (‘same business, same risks, same rules’) must apply here.
In his concluding remarks, Jordan said that the advantage of adopting stablecoin will bring in more people to access digital banking and services. However, the current banking system in Switzerland is already reliable and efficient. The banking system is updated regularly and most of the population has access to these services and even from that standpoint he said:
So, from that standpoint, too, access to digital central bank money for all households and companies, whether in the form of Swiss franc tokens or sight deposits, would bring virtually no advantages