The Bank for International Settlements (BIS), often referred to as the “bank for central banks,” recently published a new paper on retail central bank digital currencies (CBDCs) as its members approach a critical decision point on whether to advance in their CBDC endeavors. Central banks from various countries, including Canada, Europe, Japan, Sweden, Switzerland, England, and the United States are collaborating to explore the potential of CBDCs for retail purposes.
Retail CBDCs differ from wholesale CBDCs, as they are designed for use by the general public. In October 2020, the group of central banks published a document outlining key principles, followed by last Thursday’s release of “Central bank digital currencies: ongoing policy perspectives.” BIS supports central banks by promoting monetary and financial stability and is owned by 63 central banks, accounting for 95 percent of the world’s GDP.
According to the report, these central banks are examining whether there is a need to maintain ongoing retail access to central bank money amid profound and persistent changes across finance, technology, and society. They describe the introduction of a retail CBDC as a public good, which may also present an innovative opportunity for the monetary system.
As some member banks are considering whether to progress to the next stage in their CBDC work, they acknowledge the importance of private innovation as a crucial aspect of developing CBDCs for the long term. These central banks believe that legislators and authorities must remain actively involved as the work on CBDCs continues. Moreover, they emphasize the need to address outstanding legal issues related to CBDCs, which will largely depend on national law, policy choices, and CBDC design.
However, this development also raises a few concerns. Critics argue that moving forward with CBDCs could compromise the independence of central banks, potentially leading to political interference and financial instability. Furthermore, CBDC implementation may also cause data privacy and security issues, as well as negatively impact traditional banks.
In conclusion, the exploration and potential implementation of retail CBDCs by central banks offers both benefits and challenges. The decision to advance in their CBDC work will require careful consideration and a balanced approach by both policymakers and the involved central banks. As the world continues to evolve rapidly in terms of finance, technology, and society, discussions surrounding CBDCs will likely remain a pressing issue for the foreseeable future.