For central bank digital currencies (CBDC) to work effectively, public and private institutions need to cooperate to ensure integration with existing payments systems; to anticipate customers’ future needs; and to support innovation while preserving public trust, privacy and stability in the broader financial system.
These are the main conclusions of a new set of reports issued by seven central banks and the Bank for International Settlements (BIS) that looked into users’ needs, technological design options and financial stability implications of retail or “general purpose” CBDCs.
Building on an initial report outlining foundational principles for CBDCs published in 2020, the group formed by Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS has now turned to practical policy and implementation issues. While none of these central banks has yet decided to proceed with a retail CBDC, they believe continuing to work on the topic is key, due to its wide-ranging implications.
Delivering on the future needs of consumers would require systems that encourage innovation, choice and competition among a diverse mix of intermediaries. The first report explores how private-public collaboration and interoperability can be designed into CBDC systems to achieve this objective. Developing and running a CBDC system would be a major undertaking for any central bank. In particular, policies about privacy and access to payment data would be key design elements in order to maintain public trust.
The second report focuses on how a CBDC could best serve people and businesses in a fastchanging technological landscape. Lessons from previous payment innovations compiled in the report, show that success often requires harnessing network effects and not requiring users to obtain new devices. Nonetheless, there would not be a “one-size-fits-all” solution and CBDC adoption strategies would need to consider multiple perspectives through public consultations.
The third report outlines the possible impact of CBDC issuance on banking systems, in terms of intermediation capacity and overall resilience. Preliminary analysis highlights the importance of allowing the financial system time to adjust and the flexibility to use safeguards to influence CBDC adoption.
“Central banks have a responsibility to ensure that citizens have access to the safest form of money – central bank money -- in the digital age. These reports are evidence that policy makers are enhancing their domestic projects with international cooperation, sharing ideas on the best technological innovations to provide fast, easy and secure means of payment in the 21st century,” said ECB president Christine Lagarde, chair of the group of central bank governors responsible for the reports.
“CBDCs can foster innovation and preserve the best elements of the current system as it evolves. This group is helping central banks to answer difficult and practical questions about how to offer safe and neutral currency with interoperable systems that harness new technology and serve the public” said Benoît Cœuré, head of the BIS Innovation Hub and co-chair of the working group that produced the reports.
“This collaborative input from a group of central banks will help make sure that innovation in an increasingly digital world, the role the private sector plays in any CBDC system to help it meet future payments needs, and how the financial system might evolve are carefully evaluated. These reports make sure these issues are at the centre of the debate on CBDCs”, said Sir Jon Cunliffe, Bank of England Deputy Governor for Financial Stability and co-chair of the central banks’ working group.
Re-disseminated by The Asian Banker from BIS.