The Bank for International Settlements (BIS) and a group of central banks have published a paper detailing their “ongoing policy perspectives” on a retail central bank digital currency (rCBDC). The new publication is the fifth from the same authors.
The central banks of Canada, the European Union, Japan, Sweden, Switzerland, England and the United States teamed up with BIS to produce a short document in 2020 that established common principles and key features they found desirable in an rCBDC. That was followed a year later by three reports on more narrow questions an rCBDC would face.
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The latest paper mainly continued the discussion of policy elements that were previously examined. The first is stakeholder engagement, which it concluded will depend on several mechanisms. Engagement with legislators will be essential since “outstanding legal issues related to CBDC will largely be a matter of national law.”
Seven central banks and the BIS take forward their work on retail central bank digital currencies. A new report summarises ideas and perspectives on policy options and practical implementation issues https://t.co/Qppbwn7OrS#CBDC pic.twitter.com/lDZMUlRhUZ— Bank for International Settlements (@BIS_org) May 25, 2023
The paper identified seven such legal issues, starting with the question of whether an rCBDC would be the legal equivalent of cash or a new form of money. Privacy, a controversy in many current public debates about CBDCs, is also on the list.
Central banks are well equipped to issue CBDCs:
“Central banks already have expertise in creating and managing a sophisticated value chain for a mass market retail product — banknotes.”
The involvement of the private sector in the creation of a CBDC ecosystem is a policy decision as well as a practical issue, the paper said. Furthermore, public acceptance will be decisive in the successful rollout of a CBDC, and that role needs to be understood in advance:
“Certain policy objectives may only be achieved if CBDC adoption reaches, or exceeds, a certain level. This may, in turn, influence the functionality, solution design and use cases for CBDC.”
Crucial design issues include accommodating retail and wholesale CBDC interactions and cross-border interactions between CBDCs. Blockchain technology “is not deemed essential to the functioning of a potential CBDC system,” the paper said, and may not be the cheapest or most efficient technology for all types of transactions. That fact has to be balanced against the advantages of programmability and the ease of micropayment processing blockchain provides.
None of the central banks involved in the study have current plans to introduce a CBDC.
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