BIS: CBDC efficiency hinges on public-private cooperation

The Bank for International Settlements (BIS) reported interim results of research into CBDC, with seven central banks as partners.

How can #CBDC best serve people and businesses in a fast-moving world? Payment innovations history suggests harnessing network effects and not making users buy new devices. Read more from the BIS and seven central banks: https://t.co/A8LXWSyzKc pic.twitter.com/jBLXIM5w1M

— Bank for International Settlements (@BIS_org) September 30, 2021

The central banks of the European Union, the United Kingdom, Canada, Japan, Switzerland, Sweden and the Fed of the United States participate. Earlier, the BIS published the results of a joint study in October 2020.

Continuing the joint research, the group arrived at several key conclusions. First, for CBDC system effectiveness, cooperation between public and private sector actors is essential. The researchers noted that:

• involvement must be balanced to achieve the desired results and foster innovation;
• internal interoperability of CBDCs is needed for seamless cross-system transfer of digital assets;
• any functions outsourced by the central bank would require careful oversight on its part;
• the presence of intermediaries means that information privacy considerations will play a substantial role.

Second, experts say a two-tier CBDC system will help better anticipate user needs and foster innovation. They noted that central-bank digital currency payments can enable cheaper transactions, higher levels of autonomy, security and privacy.

According to the group, CBDC properties will allow commercial entities to create unique, unified payment products aimed at narrower segments of the population. Regulators will need to support a diverse ecosystem of intermediaries to provide choice, competition and innovation.

Third, maintaining stability and security of central bank digital currencies will require careful design and implementation. Experts stressed that the rollout of CBDCs will have implications for financial intermediation, but regulators have tools and experience to keep the impact manageable.

A key factor they named is the availability of adequate time for this. Excessively rapid deployment of the digital currency could bring additional risks.

Earlier, the BIS recommended central banks to accelerate the development of CBDC due to threats from the cryptocurrency industry.

The BIS urged greater attention to the use of CBDCs in cross-border transfers. Referring to trial results, BIS experts noted that CBDCs could cut the time of such transactions to seconds and reduce their cost by half.