Central banks across the world are experimenting with new electronic currencies as they try to prevent the emergence of private currencies in the mold of Libra. Two professors at ETH Zurich now are launching their own bid to get the ball rolling in Switzerland.

The plans for the introduction of electronic currencies are in the decisive stages in many countries. Sweden has advanced plans for a ready-to-use e-krona, the Chinese have introduced an e-yuan in some parts of its territory and many other nations are also mulling the introduction of digital alternatives to paper money.

Why now? Stefan Ingves, the head of Sweden’s Riksbank, is convinced that the presentation of Facebook’s Libra project in 2019 spurred institutions of the state as well as some financial market players into action, he told a webinar organized by ETH Zurich on Thursday evening.

Swiss Proposal

But while many central banks are working on e-currencies for use by the general public, the Swiss National Bank (SNB) so far restricts its bid for an e-franc to the use by financial market actors. The SNB is concerned that an e-franc for the general public would upset the historically grown two-tier banking system of Switzerland and thrust the central bank into a role that it doesn’t seek – as a provider of banking services to the general public.

Hans Gersbach and Roger Wattenhofer, two professors at Swiss university ETH Zurich, now however propose the development of an electronic currency for the general public. They want the country's central bank to produce an e-franc that commercial banks can acquire against securities or physical banknotes. Such an e-franc system would complement the monetary system of Switzerland with a digital form of the legal means of payment, according to the concept study.

Digital Alternatives to Make Banking More Efficient

The banking world has become quite relaxed about the digitization drive and is looking to undertake a major overhaul of its services. Axel Weber, the chairman of UBS, emphasized at the webinar just how far-going the plans of banks such as UBS are and pointed to the new CEO of his bank as proof of this drive – Ralph Hamers being a man with a strong digital pedigree.

Weber also said that the corona-crisis had acted as an accelerator for digital banking. But, he stressed, banks such as UBS have no interest in replacing the currencies issued by states by private cryptocurrencies such as Bitcoin or Libra. New digital alternatives are being sought, because they are more efficient and therefore cheaper.

Pitched Against Facebook, Amazon

The central infrastructure required for an economy, the currency, is thus becoming a theater of potential confrontation between state actors and established financial market players on the one side. They will do their all to prevent the emergence of parallel currencies and payment systems. On the other side there are the huge private platforms such as Facebook and Amazon that aim to make the most from the data they have been collecting over the years.

The challenge from big tech is not to be underestimated. Ingves emphasized that the emergence of an alternative currency might render obsolete the monetary policy of smaller central banks – such as Riksbanken.

No Turning Back

And yet, the decline in the use of cash (not just in Sweden) and the rejection of physical means of payments (due to reasons of hygiene) are there for all to see: «You can’t turn the clock back,» said Ingves.

He wants to have a global cooperation on the development of efficient digital currencies that are easy to use across the borders. Riksbanken thus aims to produce an e-krona that is available around the clock for transactions within Sweden but also for commerce internationally.

Currencies Are a Public Good

That, in his opinion, is the only way to prevent the global tech firms from introducing their own currencies and only the international convertibility of an electronic currency will help such an alternative to gain the trust of the general public.

The pitching of private vs. public currencies is key because the private tech firms only have their shareholders’ profit to take into consideration. Central banks by contrast are bound to produce a public good, as Hélène Rey, professor at London Business School emphasized in her statement at the webinar.