Author: Thomas J. Jordan

Chairman of the Governing Board of the Swiss National Bank

A brave new world of payments – the role of central banks

Recent years have seen important changes in the payments landscape. Cash usage has been declining in many countries for some time, and this trend has accelerated during the pandemic.
A brave new world of payments – the role of central banks

Thomas J. Jordan, Chairman of the Governing Board of the Swiss National Bank (©Swiss National Bank/ P. Dutto)

Consumers and businesses increasingly expect electronic payments to happen instantly. The private sector is seeking to meet these expectations through technological innovation. In addition to the efforts being made by commercial banks to improve their payment services, fintech companies focusing on specific parts of the financial services value chain have proliferated. Some have launched private digital assets, such as stablecoins, or other cryptoassets.

Innovation has the potential to make the payments process cheaper, faster and more inclusive. This is particularly necessary in cross-border payments, where fees are high and transactions slow. The private sector is well placed to explore innovation and provide better payment services for consumers and businesses. But payments innovation can also present risks.

The public sector can foster sustainable innovation in private payments by providing a supportive environment. This article examines the role that central banks can play here by: (i) providing a trusted core infrastructure for payments, (ii) contributing to proportionate regulation of private digital currencies, and (iii) exploring the use of digital central bank money as a means of payment.

Providing a trusted core infrastructure for payments

Payments innovation in the private sector is most effective when it builds on a trusted infrastructure backbone. Central banks have traditionally provided such an open, neutral and robust payments backbone by operating large-value payment systems in which transactions are settled in central bank money. To be ready for the age of digital payments, central banks in many countries are upgrading this core infrastructure. For instance, the Swiss National Bank (SNB), together with the private sector, is currently improving its payment system to allow for the settlement of instant payments. The SNB now also grants licensed fintech companies and distributed ledger technology (DLT) trading facilities access to its large-value payment system.

By granting non-discriminatory access to the payment system, central banks can provide a level playing field for financial market participants. This benefits consumers and businesses alike. Given the substantial scale and network effects present in payments, central banks can also bring the private sector together when cooperation is needed. For example, in 2021 the SNB and the private sector jointly introduced a new data communication network for Switzerland’s financial sector to ensure secure and resilient communication both among financial market participants and between these participants and financial market infrastructures.

Contributing to proportionate regulation of private digital currencies

Payments innovation presents certain risks. Consumers often find it hard to understand the risks associated with new digital payment services and to distinguish reliable arrangements from risky ones. Fraud and cyberattacks may also occur. Recent volatility in private digital currencies resulted in many consumers losing money, and some ‘stablecoins’ have turned out to be inherently unstable. Spillovers from private digital currencies could affect the stability of the traditional financial system. This underscores the importance of bringing such instruments within the regulatory perimeter.

To be effective, the regulation of digital currencies must be comprehensive so that the same activities and the same risks are subject to the same regulation. As digital currency arrangements often transcend borders, consistency and coordination of regulatory activities at an international level is important. The Financial Stability Board is currently reviewing how existing standards can be applied to cryptoassets and exploring the need for coordinated action. Central banks can make important contributions to these regulatory efforts within the scope of their financial stability mandate. Some central banks also have a supervisory role. In such cases, they may have primary responsibility for regulating and supervising private digital currency arrangements.

Central banks also need to understand the implications of private digital currencies for monetary policy implementation. If these currencies become widely used in a jurisdiction, this could affect transmission channels for monetary policy.

Exploring the use of digital central bank money as a means of payment

Central banks can also contribute to payments innovation by exploring the merits of issuing digital central bank money, so-called central bank digital currencies (CBDCs). CBDCs can be provided both to financial institutions that already have access to central bank reserves (wholesale CBDC) and to consumers and businesses (retail CBDC). CBDCs could serve as a means of payment for the digital economy, both domestically and in cross-border transactions.

The SNB has teamed up with the Bank for International Settlements Innovation Hub and other partners to conduct two experiments on wholesale CBDC. Project Helvetia investigated the issuance of wholesale CBDCs for settling tokenised assets and their integration into existing banking systems. Project Jura, which was conducted together with the Banque de France, connected euro and Swiss franc wholesale CBDCs on a single platform in order to settle tokenised asset and foreign exchange transactions between French and Swiss financial institutions. The insights gained from these experiments can be summarised as follows. First, while settling tokenised assets and cross-border transactions with wholesale CBDCs is technically feasible, there are considerable legal, governance and policy challenges. Second, to be useful CBDCs must be integrated into existing payment and settlement infrastructures and markets. Third, central banks must carefully consider the policy implications of CBDCs for monetary and financial stability; the implications will depend heavily on a specific CBDC’s design. Fourth, the cross-border use of CBDCs could have implications for the international monetary system, and these need to be better understood.

Whether central banks will eventually decide to introduce a CBDC – either for retail or wholesale purposes – will depend, among other things, on developments in traditional payment systems and in private digital currencies. Different central banks will likely come to different conclusions, depending on their domestic circumstances. While some may decide to issue a wholesale or retail CBDC, others may opt to improve traditional payment systems instead.


The payments landscape is undergoing a fundamental transition. New technology has the potential to improve how consumers and businesses pay for goods and services, and private-sector players are exploring the opportunities presented by such innovation. We have identified three ways in which central banks can foster sustainable innovation in the payments arena. In doing so, central banks are not replacing private innovation; rather, they are creating an environment that enables private innovation to thrive. Many contours of the future payments landscape remain unclear. It is therefore critical that central banks monitor current developments closely and understand the implications for their role in the payment system and for the achievement of their monetary and financial stability objectives.


The article is published in a series of articles in Obserwator Finansowy written by governors of central banks and distinguished economists. The series is under the special patronage of the Governor of Narodowy Bank Polski, Professor Adam Glapiński. The authors of the articles have agreed to waive their fees for writing the texts, and in exchange NBP shall donate the amount equivalent to the fees onto the account of the National Bank of Ukraine in order to support the NBU during the war. Below is a foreword by the Governor of NBP to the whole series:

On 24 February a huge tragedy occurred, in the face of which it is impossible to simply move on as if nothing had happened.

Nobody can remain indifferent to the misfortune that has befallen the Ukrainian nation.

All of us are shocked by the press reports, and particularly by what we see in the mass media.

Fighting Ukraine is not only its brave soldiers, but also an army of thousands of civilians trying to preserve normality in a country stricken by Russian aggression.

This army includes the staff of the National Bank of Ukraine, with whom NBP is in constant contact.

Aware of our Ukrainian colleagues’ needs, we have invited several central bank governors and eminent economists to share their knowledge on the economic processes taking place around the world.

It is rare for such a distinguished group of authors to feature in Obserwator Finansowy, which is published by NBP. It is also worth underlining that all the authors have waived the fees for their articles in order to donate them to meet the needs of our colleagues working in the National Bank of Ukraine.

I believe that you will find the series of these articles interesting, especially since they not only share the knowledge and experience of their authors, but also express goodwill towards the war-afflicted NBU.

Prof. Adam Glapiński, Governor of NBP

Thomas J. Jordan, Chairman of the Governing Board of the Swiss National Bank (©Swiss National Bank/ P. Dutto)

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