Central Bank Digital Currencies have become a hot topic of late with these major financial institutions understand the importance of moving with the times and breaking into the digital currency realm. The People’s Bank of China has been leading the way, but now, in the West, there is evidence they are taking it seriously.
One of the reasons for this emergence in institutionally built digital currencies actually comes down to Facebook wanting to launch its own cryptocurrency called Libra. There have been calls to start taking the technology seriously from Christine Lagarde, then head of the International Monetary Fund, but both China, and central banks in the west, only sprung into action after Libra was announced.
Now, at The World Economic Forum (WEF) in Davos, together with some of the world’s major central banks, a policymaker toolkit has been unveiled to assist in the creation of CBDCs. This toolkit is an attempt to help policy-makers understand whether deploying a CBDC would be advantageous and guide them through its design.
Big banks jump on
Earlier this week, it was announced that Bank of England (BOE) would be exploring the use-case of a CBDC along with the central banks of Sweden, Canada, Switzerland, and Japan, as well as the European Central Bank (ECB) and the Bank of International Settlement (BIS)
Many of these banks have already started some sort of investigation or piloting of digital currencies, but this represents a big step and dedication towards developing such a tool. More so, the policy toolkit at Davos will help streamline any processes central banks take i adopting this technology.
Developing a framework
At the unveiling of this policy toolkit, it was shown that the WEF collaborated with regulators, central bank researchers, international organizations and experts from over 40 institutions to develop the framework.
The head of blockchain and distributed ledger technology at the World Economic Forum, Sheila Warren explained:
“Given the critical roles central banks play in the global economy, any central bank digital currency implementation, including potentially with blockchain technology, will have a profound impact domestically and internationally. It is imperative that central banks proceed cautiously, with a rigorous analysis of the opportunities and challenges posed.”
One of the biggest reasons that banks are looking at this technology – as shown by the likes of JP Morgan and Wells Fargo – is that it can cut down the costs and times of cross border payments as well as reduce settlement and counterparty risks.
However, the space is still relatively untested and unregulated and will require a lot of work and growth id central banks are to enter it and develop a digital currency of their own.