Stablecoins Pegged Against Foreign Currency Could Affect Swiss Monetary Policy: Central Bank President
Many regulators and heads of financial institutions have expressed concern over cryptocurrencies and their use. Crypto assets come with many challenges that place financial institutions in an awkward position as far as dealing with digital assets goes.
Thomas Jordan, the president of the Swiss National Bank, said that stablecoins pegged to fiat foreign currencies could place Switzerland’s monetary policy in jeopardy. The bank’s president made this statement at the University of Basel on the 5th of September.
The Volatility of Crypto Assets
Jordan said that cryptocurrencies have limited use as a payment method, units of account, or stores of value. Cryptocurrencies are volatile and prone to fluctuations, and this affects their ability to perform those functions according to Jordan.
In his description of cryptocurrencies, Jordan said that they are speculative investment instruments and they cannot be equated to good money. People who use financial systems describe a unit of value as good if it maintains a stable value over time, if it enables easy and efficient payments, and if it is accepted by many people across the world. If these lines of definition are applied to cryptocurrencies, one can see that it is unlikely that they will be used as money in Switzerland said Jordan.
Foreign Currency Pegged Stablecoins
Some stablecoins are pegged to fiat currencies such as the USD, and these may come into use in Switzerland. Jordan said that if these kinds of stablecoins made their way into Switzerland’s system, they could impair the country’s entire monetary policy.
A stablecoin backed by the Swiss franc would have no immediate effect on the country’s monetary policy but problems come from ones pegged on foreign currency. Swiss National Bank’s president said that giving the public access to a digital currency issued by the central bank could eventually cause a bank run, and this would then threaten the country’s financial systems.
A Hub for Crypto Development
Favorable regulations and an enabling environment have made Switzerland a welcoming environment for crypto-related businesses. Many crypto companies have set base in the country, and they are running a variety of blockchain and crypto projects.
Facebook placed the headquarters for its project Libra in Switzerland and authorities in the country have put the project under scrutiny. The country’s central bank is working closely with relevant authorities to ensure that Libra is compliant with the country’s regulations. The central bank’s chairman, Fritz Zurbruegg, said that it is difficult to provide a complete analysis of Libra because the documents about the project are vague.