Central Banks Conduct Digital Currency Group Study

The findings of a major study of digital currencies by several central banks have been published.

The Bank of International Settlement (BIS) and seven central banks have conducted work on retail central bank digital currencies (CBDCs) and analysing policy options and practical implementation issues.

Digital Currencies Report

Three reports have been published exploring how CBDCs could best meet users' future needs through developing interoperable systems that support private innovation while preserving public trust.

A statement from BIS said extensive cooperation and dialogue will be required to develop and run a CBDC, preserving the centrality of central bank money for future systems that anchor public trust and support public welfare

It adds: ‘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.’

Initial Research

A group comprising Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS, has built on initial research into CBDC foundational principles from 2020.

Although a retail CBDC is yet to be issued by any of these banks, this ongoing research is seen as a positive step for the wider adoption of cryptocurrency.

The BIS statement continues: ‘Delivering on the future needs of consumers would require systems that encourage innovation, choice and competition among a diverse mix of intermediaries.’

Detailed Study

The first report looks into how CBDC systems can be designed with private-public collaboration and interoperability to achieve that objective. The report acknowledges that running a CBDC system would be a major undertaking for a central bank, especially ensuring policies were in place to protect privacy and govern access to payment data.

The second report explores how, in a fast-changing tech landscape, a CBDC could serve individuals and organisations best. Learning from the lessons of previous payment innovations, the report recognises that utilising existing networks is often required.

Outlined in the third report are the potential implications of CBDC on banking systems. A major consideration is giving the existing financial system time to adjust and the flexibility to use safeguards to influence CBDC adoption.

Reactions

Christine Lagarde, ECB president and chair of the group of central bank governors responsible for the reports, said: ‘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 policymakers 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.’

Benoît Cœuré, Head of the BIS Innovation Hub and working group co-chair, added: ‘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.’

Sir Jon Cunliffe, Bank of England Deputy Governor for Financial Stability and working group co-chair concluded: ‘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.’

Read the reports by the digital currency group on the BIS website.