Innovation
Europe should get the digital euro – but Switzerland does not want to know anything about the e-franc
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Europe relies on a digital means of payment. The local national bank, on the other hand, believes that this is not necessary: today’s means of payment are popular and accepted. Is she making a mistake?
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The sparrows have been whistling it from the rooftops for a long time, now it’s official: the euro should also be available in digital form in the foreseeable future. The Council of the European Central Bank decided on Wednesday to launch a formal project to create virtual central bank money.
The project is open-ended and designed for a period of several years. But the goal is clear: The 340 million inhabitants in the 19 countries of the euro area should one day have electronic access to central bank money in addition to notes and coins.
A touch of sovereign money
What sounds like an innovation that only needs to be of interest to technology fans, could in fact grow out to be the beginning of a revolution in the existing monetary system. In any case, this is exactly what the promoters of the sovereign money initiative dreamed of, which the Swiss people rejected three years ago with 75 percent no votes.
Money, the value of which does not depend on the solvency of a counterparty, is only available to the general public in the form of government-issued notes and coins. But very few people hoard their savings in the safe or under the mattress. The majority is in a bank account. Such balances are not central bank money, but only represent a claim to such.
Entrepreneurs want access to the National Bank
This difference only becomes relevant when a bank becomes insolvent. Then the saver loses the money that is not covered by the deposit protection system operated by all banks. This risk could be avoided if savers could invest their money directly in an account with the central bank. That is also the idea of the digital euro or the e-franc.
Many entrepreneurs would also like a broader road to secure central bank money. But only commercial banks are allowed to drive on this. The National Bank provides them with liquidity in special current accounts, which can be used, for example, to grant loans. Behind this is a division of labor between commercial banks and central banks, which the creation of digital central bank money would at least partially be called into question.
The use of cash is increasing
The ECB nevertheless sees a need for the digital euro: It should guarantee the population and the economy secure access to central bank money even in the digital age, says ECB boss Christine Lagarde, explaining the start of the project.
It was only in June that the Swiss National Bank showed with its latest payment survey that the everyday use of cash is declining at an unprecedented rate.
The use of cash is falling rapidly in Switzerland too
Nonetheless, the National Bank sees “no added value for the economy and the public” in a digital franc, as Dewet Moser, member of the board of directors, only reaffirmed in June. The existing offer of means of payment is sufficient and enjoys wide acceptance.
Of course, these arguments are also preceded by the aforementioned concern of the central bank about maintaining the division of labor with the commercial banks. This division of labor would come to an end if, in the next crisis, the population would only hoard money at the central bank, but no longer in their traditional bank account.
Sweden is struggling with problems
The ECB is of course also aware of such fears. For this reason, options will also be examined there as to whether and how an upper limit for the individual electronic central bank credit could be collected. Critics warn, however, that the establishment of such a threshold and above all its long-term defense could degenerate into a political struggle, especially in times of heightened uncertainty.
Sweden is currently showing us how difficult the introduction of digital central bank money can be. The Reichsbank had already given the green light to create an E-Krona in 2018. And cash has almost completely disappeared from everyday life in the country for a long time. But now there are various technical and legal problems with digital money that could endanger the project or at least delay it considerably.
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