Swiss National Bank

Swiss National Bank Trials CBDC in Transactions With Five Banks

14/01/2022 by Idelto Editor

The Swiss National Bank has successfully employed a wholesale CBDC to settle transactions with five commercial banks, the monetary authority announced. The tests are part of an experiment carried out together with the Bank for International Settlements and Switzerland’s financial services provider SIX.

Swiss Central Bank Tests Integration of Wholesale CBDC Settlement With Private Banks

A wide-range of transactions involving a wholesale central bank digital currency (CBDC) have been processed during the second phase of Project Helvetia, the Swiss National Bank (SNB) revealed in a press release issued on Thursday.

The trials are conducted as part of a joint initiative between the SNB, the Bank for International Settlements (BIS), and SIX, the main provider of financial infrastructure services in Switzerland. Five commercial banks also participated – Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg, and UBS.

The experiment, which took place in the last quarter of 2021, explored the settlement of interbank, monetary policy, and cross-border transactions on the test systems of SIX Digital Exchange (SDX), the Swiss real-time gross settlement system SIX Interbank Clearing (SIC), and core banking systems, SNB detailed.

The Swiss central bank and the other banks integrated a wholesale CBDC in their existing back-office systems and processes. SNB notes that in the future, a growing number of financial assets will be tokenized while financial infrastructures will run on distributed ledger technology (DLT). Regulators may need to cover tokenized asset markets in their monetary policies, the authority said and elaborated:

International regulatory standards suggest that operators of systemically important infrastructures should settle obligations in central bank money whenever practical and available. While none of the existing DLT-based platforms are systemic yet, they may become so in the future.

“To continue fulfilling their mandates of ensuring monetary and financial stability, central banks need to stay on top of technological change. Project Helvetia… allowed the SNB to deepen its understanding of how the safety of central bank money could be extended to tokenized asset markets,” added Andréa M. Maechler, member of the bank’s governing board.

The Swiss National Bank remarks that Helvetia is only an exploratory project, suggesting it should not be viewed as plan to issue a wholesale CBDC. In December, the SNB, along with the Bank of France and BIS, carried out another experiment, testing the application of wholesale CBDC in cross-border payments. Project Jura employed DLT and was also realized with the support of private sector companies.

Do you expect the Swiss National Bank to eventually issue a wholesale CBDC? Let us know in the comments section below.

Central Banks of France, Switzerland and BIS Complete Cross-Border CBDC Trial

09/12/2021 by Idelto Editor

Bank of France, the Swiss National Bank (SNB), and the Bank for International Settlements have successfully tested the application of wholesale central bank digital currency in cross-border payments. The project used distributed ledger technology and was realized with help from private firms.

France and Switzerland Explore Direct Transfer of Euro, Swiss Franc Wholesale Digital Currencies

An experiment carried out by the monetary authorities of France, Switzerland and the Bank for International Settlements (BIS) has indicated that central bank digital currencies (CBDCs) can be used effectively for international settlements between financial institutions, the participants in the trial announced.

Project Jura, which has been completed recently, focused on settling foreign exchange transactions in euro and Swiss franc wholesale CBDCs as well as issuing, transferring, and redeeming a tokenized euro-denominated French commercial paper between French and Swiss financial institutions, the banks explained.

The trial involved the direct transfer of euro and Swiss franc wholesale CBDCs between commercial banks in France and Switzerland on a single distributed ledger platform operated by a third party and with real-value transactions. It was conducted in collaboration with the private companies Accenture, Credit Suisse, Natixis, R3, SIX Digital Exchange, and UBS.

According to the partners, issuing wholesale CBDCs by providing regulated non-resident financial institutions with direct access to central bank money raises certain policy issues. To address these, they took a new approach, employing subnetworks and dual-notary signing which is expected to give central banks confidence to issue wholesale CBDCs on third-party platforms. Benoît Cœuré, who heads the BIS Innovation Hub, commented:

Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions. It also demonstrates how central banks and the private sector can work together across borders to foster innovation.

“Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which are a key facet of international transactions,” added Sylvie Goulard, deputy governor of Banque de France.

The wholesale CBDC experiment is part of a series of trials launched by Bank of France last year and a continuation of the testing carried out under SNB’s Project Helvetia. It also contributes to the ongoing work on cross-border payments at G20, the central banks remarked while also noting that it should not be viewed as a plan on their part to issue wholesale CBDCs.

Do you think Bank of France and the Swiss National Bank will eventually issue wholesale CBDCs? Let us know in the comments section below.

Dismissing Clear Market Data, Swiss National Bank Chairman Says Bitcoin Not Liquid Enough

30/04/2021 by Idelto Editor

Comments from the Swiss National Bank chairman signal that he does not understand the bitcoin market or is strategically downplaying it.

Today, a report emerged indicating that Chairman of the Swiss National Bank (SNB) Thomas Jordan commented on the liquidity of the “cryptocurrency” market.

“Cryptocurrencies are not liquid enough for the bank to have as one of its investment assets,” Jordan said.

While the chairman did not mention bitcoin by name specifically, bitcoin is by far the most liquid asset in the cryptocurrency market, and is the only logical choice for the central bank to add to its balance sheet among all “cryptocurrencies,” so it stands to reason that he is dismissing bitcoin’s liquidity.

In its 2020 annual report, however, the bank reported an asset allocation of 91% foreign currency investments, 5% gold, 1% Swiss bonds and 3% miscellaneous assets, totaling 999,027,900,000 CHF (or $1,094,506,994,458).

Digging into the report, and SNB’s strategy in general, it becomes clear that Jordan does not understand bitcoin, its liquidity or its position in relation to the investment assets that he does consider to be “liquid enough.”

“The most important element for managing absolute risk is broad diversification of investments. Risk is managed and mitigated by means of a system of reference portfolios (benchmarks), guidelines and limits. All relevant financial risks associated with investments are identified, assessed and monitored continuously. Risk measurement is based on standard risk indicators and procedures. In addition to these procedures, sensitivity analyses and stress tests are carried out on a regular basis. The SNB’s generally long-term investment horizon is taken into account in all of these risk analyses…

The currency reserves are mainly composed of gold, bonds and shares. The diversification effects achieved by adding shares to a portfolio, as well as equities’ high liquidity, make them an attractive asset class for the SNB. Furthermore, given that expected return is higher on shares than on bonds, this asset class helps to preserve the real value of the currency reserves.” -SNB’s 2020 annual report.

With the Swiss franc strengthening over the past two decades, SNB has engaged in the practice of printing francs to buy dollars (and other foreign currencies), and to buy dollar-denominated assets, including a large number of U.S. equities.

To claim that “cryptocurrencies” (read: “bitcoin”) are not liquid enough to invest in is laughable. In what CEO Elon Musk called a recent test bitcoin’s liquidity, Tesla netted a $272 million profit on its recent investment.

It is clear that Jordan is attempting to downplay what is really occurring: Central banks are being displaced and disrupted by superior technology in real time, and the game theory suggests that they should further accelerate their own demise by accumulating the world’s first and only absolutely scarce monetary asset.

If the SNB was truly interested in mitigating risk through diversification, as well as investing with a “long-term time horizon,” it would start accumulating bitcoin, and most likely not disclose the action. The numbers don’t lie, bitcoin as an asset is actually the least “risky” in terms of risk-adjusted returns.

The game theoretic adoption of bitcoin at a nation state and central bank level has yet to begin. No one is better than their incentives, and the incentive of being an early adopter of bitcoin at a central bank and sovereign level is too strong. Expect central bank accumulation of bitcoin, even while they denounce it.

For bitcoin HODLers and stackers everywhere, let’s hope Jordan is truly oblivious, and does not yet realize that he doesn’t have a choice whether or not to buy bitcoin, but rather can only choose at what price to buy it.

Bitcoin Reacts to Fed’s 0% Rate Drop, Reserve Requirements Removed, $700B in Stimulus

16/03/2020 by Idelto Editor

On Sunday, the U.S. Federal Reserve slashed the benchmark short-term rate by 100 basis points bringing it to zero. In addition to the rate cut, the Fed promised $700 billion in bond purchases and eliminated all reserve requirements for smaller financial institutions. However, the Fed’s rate cut didn’t help financial markets as stock markets and futures products worldwide have continued to tumble.

Also Read: Traders Flock to Tether, USDC, PAX – Stablecoins See Great Demand After Crypto Market Havoc

The Federal Reserve Slashed the Benchmark Rate to Zero – $700 Billion Will Stimulate Bond Markets

The coronavirus outbreak has caused an economic meltdown of wide proportions and it has invoked central banks worldwide to leverage aggressive monetary policy. On March 15, the U.S. Federal Reserve announced that it was cutting the benchmark short-term rate by 100 bps and plans to inject $700 billion into bond markets. Moreover, the Fed removed reserve requirement buffers on Sunday, which allows them to create loans without being required to keep an insured deposits threshold. The 0% rate is a record low and the emergency action brings the benchmark to levels not seen since 2008. That year, after Lehman Brothers Holdings filed for Chapter 11 bankruptcy, the U.S. central bank brought the rate to zero. The rate remained at that level for seven years and in 2015 the benchmark was lifted. Sunday’s interest rate cut will be maintained until the Fed feels comfortable with lifting it again.

“The [Fed] expects to maintain this target range until it is confident that the economy has weathered recent events,” the central bank wrote on March 15. The big announcement which included stimulating private banks with $700 billion in bond purchases followed the Fed’s stimulus move on March 12. While stock markets and commodities like oil had one of the worst days in history last Thursday, the Fed revealed it would inject about $1.5 trillion into the debt markets. The reason they did this was because the Fed wants to bolster short-term lending to private institutions in order to prevent a Treasury market collapse. During the last seven days, the Fed has fired more monetary policy cannons than it has ever before in such a short period of time.

Gold Bugs and Crypto Proponents React to the Fed’s Monetary Policy Moves

Of course, gold bugs and cryptocurrency supporters made fun of the central bank’s moves and both assets saw a slight lift after the initial announcement. However, digital currencies and gold dropped in value again 6-8 hours later after the Fed’s rate cut. Morgan Creek Digital cofounder Anthony ‘Pomp’ Pompliano tweeted: “Someone needs to say it: The Federal Reserve just panicked and made a major miscalculation.” In a morning note to investors, Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, said that central banks have deployed monetary “bazookas everywhere.” There was a massive coordinated response during the weekend from the Bank of Canada, Bank of Japan, European Central Bank, the Federal Reserve, Swiss National Bank, and the Bank of England. Despite the coordinated effort by a number of central banks, Halley underlined that critical industries are “at the edge of the cliff.”

Gold bug and economist Peter Schiff tweeted that the monetary easing worked the first time because “everybody believed it was going to be temporary.” “The financial crisis of 2008 was a cakewalk compared to this,” Schiff added. “All that happened in ‘08 was real estate prices fell, borrowers defaulted, and lenders lost money. Today global commerce is grading to a halt. Production is shutting down. This crisis is economic, not merely financial.” While Schiff predicts that gold will reap the benefits of this storm, a slew of bitcoiners believe that cryptocurrencies will triumph. “With the Federal Reserve cutting interest rates to 0% and also effectively allowing banks to hold 0$ reserves – let’s remember how this whole system is a complete scam,” the account Bitcoin Meme Hub tweeted. “Here is how the money printing machine works. The biggest scam in the history of mankind. Opt-out and buy bitcoin,” he added.

While Sunday’s 100 bps cut was the largest single move in rate cuts by the Federal Reserve since the Greenspan era, the Twitter account Whale Panda said “[I] never seriously thought that we could see hyperinflation in the US and Europe.” “After these last 2 weeks I’ve changed my mind on this,” he continued. “What’s interesting is when you saw this happen in countries like Venezuela they fled to USD. Where will people with USD flee to?” Ethereum proponent Ryan Sean Adams stressed that everything people in crypto have been saying over the last decade is coming to fruition. Adams remarked:

[The] Fed just cut interest rates to 0% — Full QE is on, $700b today — Next is fiscal stimulus, trillions [and] then negative interest, [where you] lose money in your savings account. Then super QE, Fed buying stocks — Everything the crypto people have been saying is coming true — Things are moving faster now.

In a note to investors on Monday morning, Coinshares Group’s head of research Chris Bendikesen noted that the “correlation between gold, bitcoin and equity markets has drastically increased.” “There is an old adage in the asset management industry which points out, that in a crisis, all correlations tend towards 1,” Bendikesen highlighted. “In a liquidity squeeze, a margin call cascade or a general flight to cash, everything is for sale, and everything liquid tends to get sold.” Bendikesen added:

While many in the bitcoin industry have been hailing bitcoin as a new safe-haven asset, at this point it seems clear that proponents of this status have probably gotten a bit ahead of themselves. To be clear, this does not mean that bitcoin is somehow forever barred from attaining such status, but it seems clear that this status has yet to be established.

Cryptoconomy Loses $21B Overnight, BTC Drops Below $5K

Despite the rate cut, cryptocurrencies haven’t seen a massive flight to safety toward censorship-resistant money and people are flocking straight to stablecoins and cash. After the rate cut was announced on Sunday, BTC prices jumped over 8%, touching $5,772 per coin at around 6 p.m. EST. However, BTC dropped sharply a few hours later below the $5K region and market prices are down over 12% today. While ‘Black Thursday’s’ market rout shaved more than $90 billion from the crypto market cap, during Sunday’s overnight into Monday it lost $21 billion.

At the moment most crypto supporters have no idea what the price of BTC or other digital assets will be in the near future. While some believe a crypto market rebound is coming soon, other cryptocurrency speculators are predicting much lower prices. BTC bulls have been pressing toward the $5K region during Monday morning’s trading sessions.

If market panic ensures….it may even go below $3k. I dont know. Its all about liquidity…

I never changed target of $1K on my profile and medium. https://t.co/foF0nglcjq

— Gold, Silver, Geopolitics & Bitcoin (@Super_Crypto) March 16, 2020

Meanwhile, after the opening bell of the U.S. stock market on Monday rang, the top three indexes are down considerably. Nasdaq Composite is down 738, NYSE is down 1,092, and the Dow Jones Industrial Average is down 2,275 points at the time of publication. The zero percent rate cut and the massive stimulus plans don’t seem to be enough to satisfy the markets.

What do you think about the Federal Reserve slashing the rate by 100 bps on Sunday to 0% and pumping $700 billion into the bond market? Do you think crypto markets will rebound in the near future? Let us know what you think about this subject in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article. Price articles and market updates are intended for informational purposes only and should not be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Cryptocurrency prices referenced in this article were recorded on Monday, March 16, 2020.

Image credits: Shutterstock, Fair Use, Wiki Commons, Goldprice.org, Markets.Bitcoin.com, and Pixabay.

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Back to Basics: What Is Money?

28/01/2019 by Idelto Editor

Our current economic system can be compared to a merry-go-round that has us consuming, trapped in debt and spending as quickly as we earn. What is fiat currency? Why do we use it and who controls it? And how does it compare to gold and bitcoin? It is worth going back to basics, to better understand the fundamentals of what makes money money.

Also Read: Why a Global Recession Would Be Good for Bitcoin

What Is Money?

Back to Basics: What Is Fiat Money? — The earliest coin, featuring a lion

The first ever currency is credited to King Alyattes in Lydia in 600BC, and the first coin ever minted features a roaring lion, according to the Greek historian Herodotus. Fast forward to the 21st century, and fiat money is now paper money and coins are not convertible into gold or silver but are made legal tender by fiat (order) of the government. Fiat currency is used for trade, to facilitate the direct exchange of goods and services. Without money we cannot easily acquire basic necessities such as accommodation, food and clothing.

The value of a nation’s currency is strongly tied to the value of its imports and exports. So any country that exports gold or has access to gold reserves will also see an increase in the strength of its currency when gold prices rise since this increases the value of the country’s total exports.

A new medium of exchange in the form of cryptocurrencies arrived when Satoshi Nakamoto launched Bitcoin in 2009. Unlike government issued currencies, Bitcoin has no central party responsible for controlling it.

The International Monetary Fund (IMF) is an organization that monitors global economic and financial developments. It defines money as follows:

In short, money can be anything that can serve as a store of value, which means people can save it and use it later—smoothing their purchases over time; unit of account, that is, provide a common base for prices; or medium of exchange, something that people can use to buy and sell from one another.

The IMF’s managing director Christine Lagarde acknowledges that money itself is changing, as cryptocurrencies such as bitcoin and ethereum vie for a spot in the cashless world, with the promise of quicker and cheaper settlement.

Who Controls Fiat Money?

In the U.S., monetary supply is controlled by the Federal Reserve, while around the world prominent central banks such as the Bank of England, European Central Bank, Swiss National Bank, People’s Bank of China, and Bank of Japan control fiat by adjusting its supply and the cost of borrowing it through setting interest rates.

The interest rate is the percentage charged on the total amount you borrow or save. Even a small change in rates can have a huge impact. These tools give the Federal Reserve and central banks free will to create booms and busts within the economy. Central banks also monitor the amount of money in the economy by measuring so-called monetary aggregates.

Politics and macroeconomic trends are important themes to follow as this affects the quantity of money circulating in an economy. This is why the escalating trade war between the U.S. and China is extremely important to follow. The IMF has warned that trade war could cost the global economy $430 billion. The impact of this will trickle down and hurt consumers. As U.S. President James Garfield noted in 1881:

Whoever controls the volume of money in any country is absolute master of all industry and commerce. And when you realize that the entire system is very easily controlled, one way or another by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.

Understanding Inflation

In economics, inflation is the increase in the price of goods and services in an economy over a period of time. Inflation occurs when the economy’s aggregate volume of spending grows at a faster rate than its output. This is how governments and banks take your money – through the inflation of their fiat.

Dr Edward W. Younkins, a professor of accountancy and director of the Institute for the Study of Capitalism and Morality, writes: “Inflation is a dishonest and deliberate policy and tool of politicians who do not wish to reduce their spending. The government creates new money in order to cover what it spends in excess of its income. The existence of an unbalanced budget is a frequent reason for the government to print more money. When more is spent than is raised by taxes, the government makes up the difference with fiat money. The basic cause of inflation is the government’s unwillingness to cut its spending plans or to raise the funds it desires by increasing taxation or by borrowing from the public.”

The Great Depression and Bank Runs

Back to Basics: What Is Fiat Currency? — Bank run scene from “It’s a Wonderful Life”

Those who do not learn history are doomed to repeat it. The vast majority of economic crises have been caused by flaws in the monetary system that have recurred repeatedly over the years.

In examining the history of money, is is essential to take in the outbreak of the Great Depression in the fall of 1929 which caused much economic hardship. A “bank run” occurs when a large number of people rush to withdraw their money from a bank, because they believe the bank may cease to function in the near future as it lacks the funds to cover all of its financial obligations. When the monetary system becomes unstable, a bank run becomes a possibility, although this is less likely in a system with moderate inflation. The classic Hollywood movie “It’s a Wonderful Life” captures the Great Depression and bank run perfectly.

Back to Basics: What Is Money? — Northern Rock bank run, 2007.

Bank runs are not a thing of the past. In 2007, Britain had its very own such event. Northern Rock, the U.K’s fifth-biggest mortgage lender at the time, saw the first bank run in Britain since 1866. It was only after the Bank of England said it would stand by the troubled Northern Rock that people calmed down and the pandemonium was quelled.

One of the good things about bitcoin is it’s spurred more people into asking questions about the purpose and function of money.

Thanks to Bitcoin and digital assets, I believe, many people learn about markets, investing, charting, fundamentals, gold, safe havens & other economic concepts for the first time. This is a phenomenal form of education & experience that will shape a new generation of investors. pic.twitter.com/KbGNl4DXQM

— Gabor Gurbacs (@gaborgurbacs) January 27, 2019

Sir William Paterson, a Scottish trader and founder of the Bank of England in 1694, perhaps put it best:

The bank hath benefit of interest on all moneys which it creates out of nothing.

The U.S. left the gold standard in 1971, and no country today has its currency backed by gold. More than ever, therefore, fiat currencies, and the interest rates set by the central banks who control them, are backed by nothing more than a promise. Proof of work cryptocurrencies such as bitcoin, in comparison, while wholly digital in nature, are backed by the energy expended by tens of thousands of miners that secure the network and validate transactions. Coupled with the provable scarcity that comes from having a fixed and knowable supply, and bitcoin takes the best elements of gold and combines them with fiat currency’s ease of exchange. Modern technology has given us the opportunity to evolve our monetary system and bitcoin is leading the way.

Will bitcoin become the new global currency? Let us know in the comments section below.

Images courtesy of Shutterstock, BBC, British Museum, IMF and IMDb.

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