Central Banks Move One Step Closer To Issuing Digital Currencies

Six central banks and the Bank for International Settlements have formed a working group to discuss “potential cases” for central bank digital currencies. What’s going on?

Central bank digital currency debate greatly accelerated in 2019…

Central banks have been toying with the idea of digital currencies for some time, but Facebook's announcement last year that it plans to create its own digital currency, Libra, has led to an increased sense of urgency. Previously a mere thought experiment, CBDC is now moving into the realm of reality. Some central banks want to ensure that their sovereign currencies are not sidelined by a privately-issued digital currency. Others worry about the declining use of physical cash and fear a situation where citizens would, in practice, lose access to central bank money.

To address these concerns, six central banks- the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Sweden's Riksbank and the Swiss National Bank, along with the BIS, announced yesterday that they had formed a working group, with the aim of moving from conceptual issues to the operational issues of running a CBDC and managing the consequences for the rest of the financial system.  

International coordination on CBDC is important

The working group continues the joint work of the G7 and Financial Stability Board. It is important to coordinate because currencies and payment infrastructure will have effects across borders. Two central banks stand out by their absence: the Federal Reserve and the Monetary Authority of Singapore (MAS). It's particularly surprising that the MAS is absent given that it has previously championed digital currency research.

What will be on the agenda of this working group?

There are quite a number of challenges and questions, but to pick out a few:

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Samar Abuwarda, MSc 3 weeks ago Contributor's comment

Interesting argument..Christine Lagarde raised this issue several times in her IMF public speeches..i think DC is the future pie..blockchain currencies & portfolios stormed the retail markets couple of year ago reducing time processing and substantially decreasing transaction fees..this suits endusers especially those not dealing with banks..i think if central banks wish to eliminate financial illiteracy and enhance financial inclusion, so this is their golden opportunity..Also, some reports revealed that russia and china are drafting DC legislation to keep up the pace and momentum with the upcoming market changes..