Facebook takes on global finance. But its proposed digital currency Libra frightens central banks and regulators. Below the radar, Switzerland launches its own skirmish. Two local crypto-finance pioneers this week became the first to win banking licences.
Previously famous for its secretive private banks, the affluent Alpine state is becoming a wheeling and dealing hub for electronic finance, similarly beyond the reach of other governments. Traditional bankers may sweat. The financial system, however, will benefit from Swiss experimentation.
Early stage developments in digital currencies have provoked deep scepticism. Bitcoin has bubbled. Coin offerings have flopped. Worldwide, regulators fret about money laundering. Central banks see sedition. Facebook has 2.7bn users, enough for Libra to threaten their control over financial systems. State institutions do not like private armies, nor private currencies.
Switzerland — where Libra would be located — has taken a contrarian position. Its ambition is to become the “crypto-nation,” encouraging blockchain start-ups and breaking down barriers between digital and fiat currency systems.
Switzerland’s direct democracy is praised by free market liberals. It has to protect its reputation, however. Past scandals over tax-evading bank clients gave it rogue status.
Financial supervisor Finma awarded banking and dealing permits to blockchain service providers Sygnum, in Zurich, and Zug-based Seba, a partner of listed bank Julius Baer. Finma also trumpeted the robustness of its anti-money laundering procedures.
If new systems are not about cowboy finance, what are they good for? Potentially, quite a lot. Cryptocurrencies are just part of the story. Swiss digital visionaries see potential for “token-isation” of rights and assets, such as real estate. Dealings could be instant and access global, including from “unbanked” regions of the world. Low-cost blockchain transactions could democratise finance, while offering greater privacy for customers living in corrupt regimes.
The dreams of pioneers may crumble to dust. Cost savings are unproven. Start-ups burn cash. Hostility is high.
Copyright The Financial Times Limited 2019