The latest report of the Bank for International Settlements: CBDC may bring challenges to the banking industry

The Bank for International Settlements stated in its September report that private digital assets can coexist with digital currencies operated by the central bank.

The report follows the policy ban on private Crypto in parts of Asia-this is an interesting update because it is the frontrunner of CBDC (central bank digital currency) trials and pilot launches.

The report states that “the central bank should believe that with the development of the system, the regulatory and supervisory framework will promote effective supervision and supervision.”

In a recent event, Raghuram Rajan, former vice chairman of BIS, spoke in the context of policies in parts of Asia:

“The idea behind the central bank’s digital currency is precisely to squeeze out some financial giants of Internet technology companies to a certain extent. Again, I think some democracies may have different views on CBDC.”

The efforts of different countries in CBDC decision-making are uneven. In fact, according to the Atlantic Council, five countries have already launched CBDC.

The latest report of the Bank for International Settlements: CBDC may bring challenges to the banking industry

Last month, Singapore joined forces with Australia, Malaysia, and South Africa to initiate a BIS project to test the use of central bank digital currencies.

On the other hand, we can see that Singapore has always allowed domestic and international private participants to enter the digital asset market.

At the same time, as countries such as China, Sweden, and the Bahamas are in the later stages of CBDC launch, the United States is also facing greater pressure and needs to consider a “federal digital currency.” In a recent congressional hearing, Fed Chairman Je Powell made it clear that there is no plan to regulate the industry like China.

Powell stated that the United States “has no intention of banning” Bitcoin and other relatively private Cryptos. However, it can also be seen that the Fed is still “hesitant” in terms of CBDC.

The report further predicts that the CBDC ecosystem will balance the public and private sectors to promote innovation. Therefore, countries may have to consider coexistence issues in the payment ecosystem.

The latest report of the Bank for International Settlements: CBDC may bring challenges to the banking industry

However, the report agrees that CBDC may also pose challenges to the banking industry. According to the study, large banks with a relatively high share of transaction deposits may lose their deposits in CBDCs. Nevertheless, the central bank as part of the report identified CBDC as an important tool for public policy.

Similarly, the issuance and design of CBDC are determined by sovereignty, which can alleviate some anxiety about financial instability. Rajan also agreed with the participation of the private sector and added:

“We must be very careful not to kill the private sector, because the private sector has always been very innovative.”

Having said that, BIS believes that “a credible and flexible currency is a prerequisite for the currency market and financial stability.” In order to build a digital currency, the central bank needs to have a dialogue with “stakeholders outside the traditional payment ecosystem” .

As far as new payment technologies are concerned, Rajan agrees that “it is useful to allow these technologies to flourish.”

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