digital transformation

The Swiss National Bank and the Cypto Franc

Financial newspaper “Finanz and Witschaft” published an article titled “SNB will keinen Krypto-Franken” reflecting on the speech “The financial markets in changing times – Changes today and tomorrow: the digital future” by Andréa M. Maechler, Member of the Governing Board of the Swiss National Bank (SNB) held at Money Market Event in Zurich on 05th of April 2018.

There are various views on the nature and definition of money, currency and cash which has substantially changed over time. The post How to explain ‘new’ things like bitcoin … provides some thoughts on this topic. It is very difficult to talk about all these terms as the definitions incorporate specific perspectives.

The challenge all countries, including Switzerland, face is to sustain global competitiveness. How does one move from the current economic system, of the industrial age, to one which is digital in its core. The post “Crypto Franc” – key ingredient for a Swiss national blockchain” provides a proposal published by the Fintech Rockers.

This essay proposes to create a Swiss national blockchain. A blockchain allows to track and change ownership of digital assets without the need of a central authority or intermediate. The exchange is peer to peer and cryptographically secured. Money is a key ingredient when values are exchanged and hence a blockchain infrastructure should contain some form of it to unleash the full potential.

“Such blockchain infrastructure, carried jointly by all Swiss cantons, will have an equivalent catalyst effect as the initial introduction of the railway system or the creation of the Gotthard tunnel during the age of industrialization. The Swiss national blockchain will enable local as well as foreign entities and all people with an interest and/or business relation with Switzerland to hold genuine Swiss cryptocurrency and/or execute transactions via legal compliant smart contracts.”

On this blockchain environment a cryptocurrency bound to the Swiss franc controlled by the SNB is envisioned:

“The introduction of Swiss cryptocurrency “Crypto Franc”, bound to the issued fiat Swiss Franc by the Swiss National Bank (SNB), revolutionizing digital payment capabilities. The national blockchain will enable and bring the Swiss industry(s) to the international forefront of the digital age.”

In her speech, Andréa M. Maechler commented on aspects of the proposal:

“A more prominent role for central banks in this end-customer business area is currently a subject of debate, amid calls for ‘digital central bank money for the general public’. The SNB opposes this idea. Digital central bank money for the general public is not necessary to ensure an efficient system for cashless payments. It would deliver few advantages, but would give rise to incalculable risks with regard to financial stability.”

“Which technologies and solutions ultimately prevail on this solid foundation should in principle be left to the market to decide, however. This division of roles between central banks and commercial banks epitomises our current two-tier financial system. It contributes to the stability of the system, while allowing sufficient leeway for innovation.”

Both are for sure valid points – but again perspective matters. If a “Crypto Franc” is seen as a modern form of cash then not a lot would really change. The SNB controls the amount of cash in circulation and it would continue to control the amount of cryptographic cash which could be safely kept and exchanged using a blockchain infrastructure.

Introducing cryptographic cash could have an impact on the financial system as it would allow people to keep their cash safe – within your e-wallet on a blockchain instead of your existing cash account in the bank. With a cash account the client gets a repayment promise by the bank in turn the bank can use the amount from this account for other business (e.g. mainly lending). The value of the repayment promise depends on the trust in the bank while the trust in the Crypto Franc depends on the trust into the currency.

Thus issuing cryptographic cash is not of the interest of the bank when ownership and value is no longer with the bank but with the individuals. Regardless if a cryptographic currency is introduced, the prevalent systemic risk will continue as long as there is still book money or money created though credit. As the adoption of cryptographic currency increases, it will eventually reduce the systemic risks as commercial banks need to compete for such currency of clients. Clients will need to make an explicit decision when putting Crypto Francs onto an account which means transferring ownership to the bank against a repayment promise. They need to assess the risk(s) whether a bank is able to meet its repayment promise. On the other side the bank can provide return on investment where such transparency would rather de-risk the system invalidating some of the arguments stated by the SNB.

There is an increasing interest by companies and other organizations to create their own form of money. Dr. Edward De Bono suggested years back that companies should consider to issue their own currency using IBM as the example (Towards a digital barter economy?). It was futuristic at the time where he made this proposal – but today in a digital world it becomes feasible (David Birch – Before Babylon, Beyond Bitcon – from Money that We understand to Money that understand Us ). There seems to be a trend going into this direction which could accelerate with potential huge implications on the existent monetary system.

“The SNB will keep a close watch on developments to ensure that it always remains able to assess their potential impact on the financial system in good time.”

This sounds given the context to passive. The SNB needs to active in the developments to gain the required experience. Observers will typically be late. Being late means becoming defensive and reactive. The SNB in my view should be active and engaged in building the best possible future for Switzerland and its financial system.

The ‘No’ by the SNB feels premature influenced by past paradigm rather than by the current developments and the needs of the future. One aspect became prevalent from all the statements across the various parties engaged in the thought exchange is the complexity of the topic. It is a complex network problem and requires much more thoughts and discussions. It is key to have these exchanges in a frequent but immediate manner in order to come to conclusions before other organizations/entity(s) may take over and suddenly provide “the” new form of money pushing organizations like the SNB into a reactive rather than proactive position.

“Crypto Franc” – key ingredient for a Swiss national blockchain

In various countries there are discussions about a crypto version of the national fiat currency, which in the case for Switzerland this could be the “Crypto Franc”. We joined the Fintech Rockers writing the exposé Swiss national blockchain and cryptocurrency.

The exposé proposes the “Crypto Franc” in the context of a national blockchain which would serve as the digital backbone in the shaping mesh economy. We expect with a stable currency available on the blockchain that it will provide a catalyst effect of the economy. Such stable currency could be the “Crypto Franc” issues by the SNB directly pegged to the Swiss Franc.

For Switzerland (and other countries) it is imperative to think about its future in a digital mesh economy. Such an envisioned blockchain would be an excellent foundation. There are ongoing debates about such a strategy but prompt and immediate decision and actions on this topic are required in order to stay a leading country in the global financial system.

The exposé was mentioned under the title “E-franc pipe dream fails to arouse Switzerland” on swissinfo.ch recently.

The challenge of (financial) mobility of the future

I had the great pleasure to join the “Impulse Apero” on Feb 6th organized by Kellerhals Carrard and Implement Consulting Group featuring the head of the SBB’s board of directors Monika Ribar. Monika walked the audience in her inspiring presentation through the challenges and opportunities of mobility of the future.

Transparency is the new currency – people estimate transparency. Its about enabling people to reach their goals independent of the provider and about being informed in good and in bad times.
Openness is the new norm – we are living in a network economy. Openness is the key to unleash the combined potential of all services in the network. Closed and monolithic systems are relicts of the past.
Holistic services – users want to have an end to end service and an broad overview. There is just the choice of providing it or let somebody else do it.
Simplicity – the different pricing schemes used by the various service providers are hard to understand for the consumer. But all this complexity can be hidden using smart technology – either by offering a flat rate scheme which enables general usage or by simply billing the actual consumption with the optimal price for the consumer.

These points are very true for a mobility provider and also for financial services and other industries as the relate to big shifts in society. There is one huge difference – the SBB has a huge logistic challenge with a lot of infrastructure which is required to realize the desired degree of mobility. Financial services companies in essence just deal with information and have a simpler problem to solve.

I also would like to highlight a few other aspects which I found very interesting:

Empowerment – the people who are in contact with the users must be empowered to solve problems in creative ways. They see the problem and they can directly engage and solve them with their creativity. The SBB has allocated a budget at discretion for the ‘railway companions’ – this are the people in the train who make sure that the travelers have a smooth journey. This empowerment of employees at the point where the company engages with the clients is just cool.
Team – the rail clean organization is now a part of SBB again and wears he SBB logo. In more an more automated railway stations they are often the only people. Now the wear an SBB logo again and can help support travelers in case of problems. This is a win-win situation as the job has become more interesting and as clients have a further human touchpoint with the brannd.
Development – all roles are changing due to the evolution of the environment and the technology. It is of strategic importance to think about the roles and their evolution paths. SBB grows and moves together with its employees into the future of mobility.
Data – SBB as a provider collects a lot of data about its users. Monika stressed that the data belongs to the client and not SBB. So the client decides when and how this information is used.

Again four aspects which can be translated very well into financial services. The empowerment of the staff is key, every employee is a part of the brand management and client data belongs to the client and not the service providers.

Be your digital self …

We all have at least one digital self, something representing us to engage in the technological world. Initially this may just be information about us and related data. But at some point, in time this digital footprint will learn and adopt our behaviors and become active.

We may have multiple digital selves – genuine and facades. The genuine self is the one which learns directly from our behaviors and mirrors our social identity. The facades are tailored for specific situations or may try to protect the genuine self.

The genuine digital self will become a mirror of you – most likely knowing more about you than you do yourself.

Is the genuine digital self a legal subject or just acting on behalf? Our genuine digital self will be able to act much faster considering more information than we can – if allowed. We must consider the level of responsibility and accountability on our physical self for what it does. Should this begin with a form of parent child relation and to evolve becoming a legal subject over time. This evolved relationship enables the digital citizen to grow and learn over time to become of full legal age at some point.

Ethical standards for digital selves will become increasingly important – humans have ethical basic patterns which are inherited and part of the DNA. Before digital selves become widely adopted and increasing active, digital self will require such standards.

We will, as part of the evolution, need to revisit our standards of privacy. Are we able to pause our digital self and what would be the impact and disruption to our digital ecosystem? Digital self-editing may sound funny but may soon become a serious issue when others detect discrepancies and lead to distrust. Observed digital selves – you observed by others – can be used to validate information or complement it. So, you need to become more yourself – which for most people is not a big issue.

We need to evolve our perspective of what we treat and define as sensitive information during this journey. Fundamental attributes such as name, birth date or social security number will be increasingly hard to protect. So, we will need to change the way how we see personal information during this journey. Many legacy constructs like credit card numbers are not suitable for the digital age and must be replaced – this is the essence of the ‘digital transformation’.

Obviously, the digital self needs to be well secured and protected. This includes integrity, availability and confidentiality. Initially you will be responsible to keep your true digital self secure. But at some point, this will change and your digital self starts to protect you – two evolutionary states of digital self defense.

Links:

Understanding and creating your digital self

Change is inevitable ….

Evolution, tranformation or beginning revolution – open your mind, think and act!

Change is the only constant. Have you thought about the types of changes we are experiencing now? Is it evolutionary, transformational or even the coming of a revolution?

Evolution – the gradual development or formation of
Transformation – a dramatic change of state of being
Revolution – a dramatic and wide-reaching change in conditions, attitudes, or current establishment

Today many use the term ‘digital transformation‘ to mean the transformation of the current state into a state which is digital in its core. A state where information is continuously collected, exchanged and analyzed allowing to create smart and interconnected products which adapt and learn.

Some refer to the ‘4th industrial revolution‘ and mean a fundamental and wide reaching change affecting the life of all of us, the society and its values. What happens when smart machines perform the work and humans have time? Do we then focus on our intrinsic motivation? It is clear that many of the paradigms and trained thinking patterns we are used to immediately become invalid.

If you look around and open up your mind – enabling you to notice what you belief is possible – thus you then sense that we are probably quite close to a revolution where many things we consider as naturally given today will be replaced by a new normal.

Start by looking at a one example: self-driving electric cars and its implications. Soon we will transition from car ownership to co-sharing where you pay per use via a simply request which matches your current needs. There is no need for personal parking spaces or garages; With connected self driving cars, there will be substantially transformation of current governance and road infrastructure, less cars and accidents; insurances business model will need to be different.
Other additional examples to ponder upon such as the increase in automation or the on-demand replication of goods and imagine how the implications of these scenarios interfere and influence each other.

The changes are combinatorial and the consequences are profound and complex. They will most likely happen much faster than expected once its trigger point is reached.

Are we really in a transformation or at the beginning of a revolution? Are you ready for the change? Are we ready for the change? Is your company making the future happen or busy running a red queen’s race?

Change happens …. change is happening …. progress in optional