The Bank of International Settlements plans to launch a Central Bank Digital Currency proof-of-concept in partnership with the Swiss National Bank.
This was the latest big headline centred on CBDCs coming out of the Bund Summit financial forum which was hosted in Shanghai from October 23-25. Alibaba founder Jack Ma was another keynote speaker that weighed in on the ever-brightening spotlight on CBDCs, while calling for regulations that encourage innovation in the financial sector as The Daily Chain reported earlier this week
Benoît Cœuré, head of the BIS’s Innovation Hub, said that the institution was set to release its very own CBDC in a proof-of-concept phase with the help of Switzerland’s Central Bank by the end of the year.
“This work will pave the way for experiments on the building blocks of a retail CBDC, general purpose CBDC, to inform design and technological choices. These building blocks might include interlinkages with existing payments, APIs for distributions, digital identity rails, compliance monitoring, cyber and counterfeiting resilience and offline functionality. To do that we will grow our own blockchain capacity,” Cœuré said.
The promise of CBDCs
Cœuré’s virtual address was centred around the massive interest and ongoing research and development by the majority of Central Banks around the world.
He made mention of a BIS report that was published in collaboration with a number of the world’s biggest Central Banks that indicated that 80 percent of Central Banks had already started to conceptualise and research the potential for CBDC. 40 percent were building PoC and 10 percent were deploying pilot projects.
The BIS Innovation Hub head said that electronic money was ‘hardly a revolution’ but innovations like blockchain technology is driving the move to new systems
“So if Central Banks want to keep delivery monetary and financial stability in a changing technological environment they will have to do it differently and harness technology. For starters CBDC will ensure that as our economies go digital the public will retain access to safe Central Bank money just as they use bank notes today and this will be in a form that they can use freely in their daily lives.”
Cœuré said that a digital bank note could do more than a paper one by promoting payment diversity, making cross-border payments faster and cheaper, fostering financial inclusion and even facilitate physical transfers in times of crisis, such as the ongoing COVID-19 pandemic.
Adopting blockchain tech to facilitate financial evolution
Cœuré also noted that the development and issuance of CBDCs should complement and not replace cash and safe private money.
“That’s a real opportunity for a CBDC, it’s more than just another way to pay. It could be the evolutionary foundation for new publicly accessible platforms to encourage diverse ecosystems of banks and fintechs, avoiding the winner takes all networks that we see emerging in our daily digital lives and making sure that innovation benefits the many and not just the few.”
Another important consideration is the sharing of ideas between Central Banks and this is a major focus for the Innovation Hub of the BIS. With centres in Hong Kong, Singapore and Switzerland and more being established in Frankfurt, Paris, Stockholm, London, Toronto and New York, Cœuré insists that collaboration will be key in the development of interoperable CBDCs.
“This complex technical work is above all directed towards practical solutions rather than the conceptual research of recent years. Our CBDC strategy at the BIS Innovation Hub is built on international cooperation. As we can see, China and other countries are leading the way in CBDC. But through collaboration between CBs, every country can learn and we can progress together.”
Cœuré said collaboration will drive experiments on the building blocks of general purpose CBDCs to inform design and technological choices.
“These building blocks might include interlinkages with existing payments, APIs for distributions, digital identity rails, compliance monitoring, cyber and counterfeiting resilience and offline functionality. To do that we will grow our own blockchain capacity.”
Lastly the BIS Innovation Hub director also brushed aside the hype of CBDCs by acknowledging that they will not necessarily change the world as we know it. However Cœuré believes that they could greatly improve the way the world is able to use money in their daily lives.
“They will not usher in an age of prosperity or solve a raft of societal issues, that’s beyond the scope of any currency. They are not a revolution or an end in themselves. But CBDCs might be a way of achieving a more inclusive and accessible safe and convenient form of money, might support a more diverse payment ecosystem, nationally and internationally, and if developed astutely provide a new form of a global public good.”
