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The Swiss National Bank (SNB) has said there is not a valid use case for a retail central bank digital currency (CBDC), setting a different tone from other central banks that are pursuing the technology.

Many of the functions of a retail CBDC are already carried out in Switzerland by private operators, and helped by regulations that require most financial institutions to process instant payments by August this year.

“The SNB currently sees no need in Switzerland for such digital central bank money for the general public,” SNB chair Thomas Jordan said at a conference last week.

“Consumers and businesses already have access to a wide range of efficient and innovative payment instruments offered by the private sector.”

Jordan warned that a retail CBDC could “fundamentally alter” the current monetary system and the role of central and commercial banks, with “far-reaching consequences” for the financial system.

“From a Swiss perspective, the risks of retail CBDC currently outweigh its potential benefits,” he said.

Although other central banks have touted retail CBDC as a way to  as a “monetary anchor”, the SNB argued that this can be achieved without issuing a new form of currency.

“Retail payments are ultimately settled by transfers of central bank money between commercial banks, highlighting the critical function of central bank money as the monetary anchor,” said Jordan.

“With this in mind, the SNB has upgraded its payment system to strengthen the role of central bank money for retail payments.”

Instant payments

In particular, Jordan highlighted the improvements the SNB has made to Switzerland’s instant payments infrastructure as an example of why a CBDC is unnecessary.

In November 2023, the SNB introduced an instant payments service to the Swiss Interbank Clearing (SIC) system, the country’s national payment system created in 1987.

Known as SIC 5, the latest version of SIC will allow account-to-account payments between participants to be settled within seconds on a 24/7 basis.

The promise of SIC 5 was spelled out in an SNB  delivered in March 2023 on the Swiss Payments Vision. There, the SNB noted that the success of Twint, an instant mobile payments platform, demonstrates strong consumer demand for fast payment services.

In a country of 8.7m, Twint has more than 5m active users and in 2022 it  more than 386m transactions. Launched in 2016, Twint has been so successful that the verb “to Twint” has entered everyday usage, the SNB said.

Although Twint users may feel like they are sending and receiving instant payments, this is not what is happening under the hood.

Twint transactions do not result in an immediate final transfer of value between the participating banks. Instead, there is initially only a promise of payment from one bank to another.

“Only an immediate and final transfer of value avoids this credit risk,” said the SNB. “Instant payments enable just that: the complete processing of retail payments in real time, around the clock and from customer to customer.”

In addition to facilitating speedier transactions, the SNB said that instant payments allow for shorter settlement chains, which contribute to lower fees.

“The shorter the chain, the lower the risks,” the bank said. “This should reduce costs, because the assumption of risk is not free and can be reflected in higher payment fees.”

Obligation on FIs

Under an SNB mandate adopted in June 2021, financial institutions that process more than 500m transactions per year must be able to receive instant payments by August 20, 2024, when SIC 5 goes live.

According to the central bank, about 70 FIs are expected to be SIC 5-ready by this date, covering more than 98 percent of existing customer payments. It expects the remaining Swiss FIs that process customer payments to be able to receive instant payments by the end of 2026.

The 2026 deadline was chosen to align with similar regulations in the EU, also covered by 91����ԭ��. These regulations mandate that, by April 2026, payment service providers (PSPs) located outside the eurozone must be able to receive instant credit transfers in euros.

Similarly, by October 2026, PSPs located outside the eurozone must be able to send instant credit transfers in euros.

Jordan said the SNB’s mandate and its alignment with EU rules will lay the foundation for competition between different payment instruments and providers.