The Bank of International Settlements has released a report outlining ‘principles and core features’ of central bank digital currencies in collaboration with a number of the world’s biggest central banks.
The report emphasizes the need for certain criteria to be met in order for any jurisdiction in the world to consider the development and issuance of a CBDC. A top priority for Central Banks is ensuring that issuing a CBDC would not compromise financial and monetary stability.
The report was jointly produced with the collaboration of the Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and Bank for International Settlements.
Key takeaways
The report focuses on a handful of key considerations for the potential issuance of major CBDCs in the future.
As mentioned there is a major emphasis on ensuring that any central bank that intends to issue a CBDC should not compromise monetary or financial stability.
Of equal importance is the need for a potential CBDC to ‘coexist with and complement existing forms of money’.
A third major consideration is that a CBDC needs to promote innovation and efficiency in the financial and banking space.
The report also highlights the main concerns for central banks which includes the potential ‘adverse impact’ that a CBDC could have on bank funding and financial intermediation. This includes the potential for a CBDC to destabilise existing central bank money.
The road ahead
The report also makes it clear that any decision to launch a CBDC would need to be made in an ‘informed judgement’ that various risks associated with a CBDC can be managed.
This would require a ‘combination of safeguards’ implemented in the design of a CBDC as well as through financial system policy and regulations.
The group of central banks intends to fully explore the potential effects of a CBDC on market structures as well as their implications for wider financial stability.
There was a fairly positive sentiment that if a CBDC can meet the criteria outlined in the report and deliver on various key features, they could be ‘an important instrument for central banks to deliver their public policy objectives.’
Collaboration key for the future of CBDCs
There seems to be a united effort from major central banks to collaborate on the research and development of CBDCs.
Given that these institutions from different jurisdictions find common ground on the core principles and features of a CBDC, the report emphasises the potential ‘for future international collaboration, knowledge-sharing and experimentation on CBDC.’
The potential for improved cross-border payments is also outlined, which would form part of the G20 road map.
The BIS report states that the next steps for CBDC research would focus on ‘ individual and collective
practical policy analysis and applied technical experimentation by central banks.’
