Expert interviews

Expert interviews

Thomas Moser, Swiss National Bank: Bitcoin has more users than the population of Switzerland

by Blocks99

11 months ago


https://switchere.com/?r=qubdy7pgxjw5

Thomas Moser of the Swiss National Bank on FinTech, cryptocurrency and disruption of the finance industry. He also shares his views on central bank digital currency (CBDC).

Thomas Moser has been an Alternate Member of the Governing Board and Deputy Head of Department of the Swiss National Bank since the beginning of 2010. Before joining the Enlarged Governing Board of the Swiss National Bank, Thomas Moser was Executive Director at the International Monetary Fund (IMF) in Washington D.C. (2006–2009), economist at the KOF Swiss Economic Institute ETH Zurich, and research and teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich. Thomas Moser has a Doctorate in Economics from the University of Zurich. Blocks99 had the pleasure of speaking with Thomas in early November 2019.

Blocks99

Let’s begin by talking about FinTech in general. You’ve been involved in the space for a long time. What are the key topics? Where do you see it going? What are the roles of exponential technologies such as blockchain and AI in transforming the finance industry?

Thomas Moser

FinTech has definitely grown up over the last years. We now have a number of licensed and fully regulated companies. In Switzerland, two blockchain service providers have recently received a full banking license. While money transfers and payments are still the main use case, AI is helping to transform lending and asset management at a fast pace, and insurance is increasingly becoming a use case as well. However, all the successful FinTech companies are centralized service providers. The big question going forward is whether there is a larger role for decentralized finance. This was the original promise of projects like Bitcoin and Ethereum.

Blocks99

Bitcoin is, of course, the first and best-known cryptocurrency. Jamie Dimon of JPMorgan Chase famously called it a “fraud.” He later changed his views and JPMorgan Chase has even launched its own cryptocurrency. What are your views on bitcoin and the likelihood that other people from the “old” finance industry will follow a similar transformation path towards bitcoin?

Thomas Moser

Bitcoin is clearly a disruptive technology and “business” model, and therefore much more difficult to understand then centralized FinTech companies and applications like Revolut or WeChatPay. A lot of people could just not imagine that Bitcoin would actually work, and the speculative frenzy in 2017 didn’t help. But Bitcoin has worked now for 11 years. It’s an impressive achievement. Of course, bitcoin has not become a widely used medium of exchange, and mining is rather centralized. But bitcoins have a monetary value, the Bitcoin protocol has never been hacked, and it has more users than the entire population of Switzerland. Bitcoin has proven that decentralized finance is possible, but it is an open question whether it is scalable and whether it will be able to replace centralized finance.

Blocks99

In a recent interview with us, Guenther Dobrauz, a Zurich-based Global Financial Services Legal Leader for PwC who is prominent in the blockchain sphere, talked about how Switzerland’s focus on regulating digital assets is helping drive adoption. Please share your thoughts as a Swiss National Bank Board Member on the relationship between smart regulation and the growth of an emerging industry like blockchain.

Thomas Moser

Let me say in advance that in Switzerland the financial-markets regulator is FINMA, not the Swiss National Bank. FINMA has been very principle-based, technology-neutral and transparent in its approach to regulation. This is conducive to an emerging industry like blockchain. It also helps that Switzerland has a unified regulator; there are not different regulators who first have to clarify their responsibilities when faced with innovation. And finally, it is also important to have a strong and independent regulator to avoid regulatory capture – otherwise incumbent companies from the “old” finance industry make it difficult for new, innovative companies to enter the market.

Blocks99

You have said that, after initial interest, central banks have become skeptical about national digital currencies. Please explain this global development and what you foresee in the long term. European Central Bank head and former IMF boss Christine Lagarde said crypto is shaking the system. What are your views on this?

Thomas Moser

For a long time, central banks didn’t really pay attention to digital currencies, especially central banks from advanced countries, but then about three years ago a number of central banks announced that they were considering the issuance of central bank digital currencies – CBDCs. They quickly realized, however, that a CBDC available to everyone – a so-called retail CBDC – raises a number of stability and policy questions that require serious analysis. For instance: what are the risks of disintermediating the banking sector, and how does it affect the monetary policy transmission channel?

At the same time, experiments with CBDCs only available to banks for settlement purposes – so-called wholesale CBDCs – showed that there are no efficiency gains over a modern, account-based real-time gross settlement system. Both of these insights have dampened the enthusiasm of central banks. So far, no country has issued a CBDC. It is sometimes claimed Tunisia or Venezuela have, but the respective digital currencies are not issued by the central bank, they are not liabilities of the central bank. Ecuador came probably the closest so far with its issuance of an electronic dollar, but this was more like a stablecoin and did not turn out to be a success. The project has been terminated.

However, the Libra announcement and the prospect of a BigTech issuing its own money has brought new momentum to the question, particularly in emerging and developing countries, where Libra could be a bigger threat. I think a crucial issue going forward with CBDCs is whether current financial market infrastructure can and should be replaced by blockchain technology. If yes, it will be necessary to tokenize money, and CBDC is then the obvious solution.

Blocks99

The Swiss National Bank has recently announced that it will explore options to make digital central bank money available to the SIX Digital Exchange (SDX). Why is this viable in Switzerland and what are the advantages?

Thomas Moser

SDX is exactly such a blockchain-based financial infrastructure. Specifically, it will be the world’s first fully regulated blockchain-based platform for the issue, trading, settlement and custody of digital assets. As part of a proof of concept, the Swiss National Bank is working with SDX to explore the possibility of a CBDC on the blockchain for the trading and settlement of digital assets between financial market participants. So this is not a retail CBDC that will be available to households. It is a wholesale CBDC for a specific infrastructure. Unlike wholesale payments between banks, which a modern real-time gross settlement system can handle efficiently, the trading and settlement of digital assets on a blockchain promises efficiency gains.

Blocks99

Sygnum group has recently obtained a digital asset license from MAS, following the license granted by FINMA. This looks like quite an achievement for the industry. Many companies have been trying to obtain such licenses, but were unsuccessful. In your opinion, what makes a company eligible for a digital asset license from well-respected financial regulators such as MAS and FINMA?

Thomas Moser

This is indeed a major step for the integration of cryptoassets into the established financial sector, and I think it was a world premiere. In fact, FINMA has granted banking licenses to two Swiss blockchain service providers simultaneously, Sygnum AG as well as SEBA Crypto AG. One characteristic that sets these firms apart from other blockchain companies is that both of these crypto banks have a top management that includes very senior former bankers and, in the case of SEBA, even the former General Counsel of the Swiss Financial Market Supervisory Authority. So these people knew the necessary requirements for such a license very well. These are innovative new banks, but with significant financial and regulatory experience.

Blocks99

When Mark Zuckerberg testified before the US Congress on October 23, Chairwoman Maxine Waters cited Facebook’s failings and said, “With all of these problems I have outlined, and given the company’s size and reach, it should be clear why we have serious concerns about your plans to establish a global digital currency that would challenge the US dollar.” Please share your views on Libra and whether it could threaten central banks and national currencies. What do you see as the upsides and downsides of the initiative?

Thomas Moser

Facebook has the potential to become an important payments provider, not so much through the Facebook platform but through its messaging application WhatsApp, which has been widely adopted, particularly in emerging markets. This is what we have seen in China with Tencent’s messaging application WeChat. However, WeChatPay uses the Chinese currency. Creating a new currency is a different story altogether and much more difficult.

In the end, the people decide which money serves their purpose best, they are free to choose what money they want to use in private transactions. The state can only prescribe what currency citizens have to use when interacting with the state, for example when paying taxes or fees. So there is a risk that Libra could threaten national currencies, but this is not something new. The dollar or the euro are also a possible threat to national currencies. And there are countries where the US dollar or the euro has replaced the national currency. But this is usually either a deliberate decision of the respective government, or the result of currency mismanagement. Size alone is not sufficient to threaten a national currency, otherwise there wouldn’t be any small countries with their own currencies.

In terms of other risks, Libra would obviously have to be fully regulated and satisfy all the requirements that other money transfer and payments providers have to fulfill, particularly with regard to AML, CFT and KYC, but there are no indications that Libra doesn’t intend to do that. An upside that I see to the initiative is the new attention it gives to the fact that the costs of the current payments systems are very regressive. For poor and unbanked people, the current system is extremely expensive. If there is a base fee for a certain cross-border payment of say 20 US dollars it obviously makes a difference whether you transfer 100 or 10,000 US dollars. Also, if you are a small vendor with little savings, it makes a difference whether your customer’s payment is credited to your account or wallet immediately or two days later.

Blocks99

China has said its state-issued digital currency is very close to launch. What are your views on Beijing’s strategy? At the same time, Binance has now begun presenting Venus, its planned cryptocurrency, as a government-friendly rival of Libra. What do think about this rivalry?

Thomas Moser

I wouldn’t be surprised if China were the first country to issue a retail CBDC. But China, too, has to consider what the effects would be on its banking sector and on its two large payments providers, WeChatPay and Alipay. It will certainly be interesting to see what China will do. Binance is a large crypto exchange but it lacks the reach of a messaging application like WhatsApp. The general problem with stablecoins is, just like with pegged exchange rates, that the peg can be broken. With privately issued currencies, whether stablecoins or not, there is also always a credit and liquidity risk. Only CBDCs are free of such risks. In that respect, bitcoin is closer to a CBDC, but it is a decentralized version. This brings us back to the question of the role for decentralized finance versus centralized finance, which goes beyond Libra and CBDCs.

Blocks99

Is there anything you wish to add?

Thomas Moser

Yes, together with the University of Basel, the Swiss National Bank will organize another Crypto Assets & Financial Innovation conference on May 29, 2020. We have just issued the call for papers. Last time, the keynote address was delivered by none other than David Chaum. I hope we can follow up on that success. I am open for suggestions.

Blocks99

Thank you very much for taking the time to speak with us!

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