Central banks issue money in the form of cash and book money. Everyone can hold cash. Central bank book money, on the other hand, can only be held by regulated commercial banks 1 in the form of sight deposits at the central bank. The diagram shows the central bank, in dark blue, as the bank of commercial banks. It manages the accounts of commercial banks, implements monetary policy, and performs its role as lender of last resort by providing liquidity to commercial banks in the form of sight deposits.2 Commercial banks create private money in the form of book money that customers deposit with them. They compete with each other and are therefore interested in offering their customers the banking services, such as credit and payment solutions, that best meet their needs. They are also responsible for complying with anti-money-laundering and know-yourcustomer rules. Commercial banks are thus the link between the financial system, shown in light blue with the central bank at its centre, and the rest of the economy (in green). Sound and appropriate regulation plays a key role here. Banks are authorised to create private money and can obtain liquidity from the central bank, but must at the same time comply with strict capital and liquidity requirements. This brings me to the second principle: All payments that are important for the system as a whole are to be settled in risk-free central bank money (cf. slide 2). 3 These payments are represented by the dark blue lines.
And from August 2024, the largest commercial banks active in retail payment transactions will be offering their customers the possibility of receiving instant payments. However, for instant payments actually to be available to commercial banks’ end customers, private sector solutions are still needed. According to surveys, many commercial banks are also planning to offer the possibility of sending instant payments from August 2024 onward. Competition among commercial banks should ensure that efficient payment solutions are offered to end customers, for example in ebanking. What do instant payments mean for the two-tier financial system? Instant payments settled in central bank money are an example of how our first principle – the division of labour between the central bank and the private sector in the two-tier financial system – enables successful implementation of innovations. With the introduction of instant payments, the end customers of SIC participants will also be able to settle their payments securely, quickly and in central bank money. In Switzerland, the irrevocable and secure transfer of value in central bank money in real time has to date only been possible for participants directly connected to the SIC system. This expansion of the group of participants brought about by instant payments corresponds to our second principle: the secure settlement of payments in central bank money. What about our third principle, the seamless integration of payment methods and forms of money? It is precisely here that we find the most significant innovation prompted by instant payments.