The Bank for International Settlements (BIS) said Wednesday it fully supports the development of central bank digital currencies (CBDC) in economies, saying it is key to modernizing finance and ensuring that currency issuance is not controlled by tech giants.
The BIS is currently coordinating multiple discussions on digital currencies and has made a series of recommendations on the development of central bank digital currencies such as the digital dollar, euro and yen.
In its annual report, “CBDC: Opportunities for the Monetary System,” the institution notes that at least 56 central banks and monetary authorities – covering one-fifth of the world’s population – are working on digital currencies as modern commerce becomes more networked and widespread.
“The train has left the station,” said Benoit Coeure, head of the BIS Innovation Center, on the prospects for central bank digital currencies, “but this is not the time for us to cheer success.”
The study found that cash use is declining globally year by year and countries are facing threats to their minting power from unofficial digital currencies and tech giants. Without a central bank version of digital currency, the market could gradually be dominated by large tech companies with huge social media user bases and governments unwilling to lose control of their sovereign currencies, Coe warned.
Some countries are already at the forefront of attempts at central bank digital currencies. The Bahamas last October became the first country in the world to launch a universal central bank digital currency, dubbed the Sand Dollar, with an initial issue of 48,000 pieces designed to drive greater financial inclusion among the remote islands within the archipelago. In addition, the Swiss and French central banks recently announced the first cross-border trials in the European region.
On the issue of applied technology, Hyun Song Shin, economic advisor and head of research at the Bank for International Settlements, noted that economies will need to confirm whether citizens need a digital ID to use the central bank’s digital currency or go a Token-based identification technology, a route currently used by many cryptocurrencies to maintain the anonymity of transactions .
The Bank for International Settlements has concluded that some type of digital ID system is “the better way to go.
Federal Reserve Chairman Jerome Powell said during a congressional hearing on Tuesday that digital ID was “part of the discussion” when it came to looking at digital currencies, and he wasn’t sure if he would address the issue within the upcoming Federal Reserve digital currency white paper. The Fed has also been working on a payment system for years and may release a product called FedNow in 2023 to address many of the issues related to transaction immediacy and the unbanked dilemma.
BIS experts believe that the introduction of a relatively mature digital dollar or euro is at least two years away, but global rule-making around central bank digital currencies could become a process of political gamesmanship.
In this regard, Coe stressed that the relevant rules discussion should not involve any political factors.
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