Central bank digital currencies (CBDCs) are moving from concept to practical implementation, updating the institution of money for the digital era, according to Hyun Song Shin, head of research at the Bank for International Settlements (BIS).
In the Annual Economic Report he presented the findings BIS researchers arrived at during CBDC research. The section of the document devoted to the topic is titled ‘CBDC — a promising opportunity for the monetary system’.
Among BIS experts’ key views, Hyun Song Shin highlighted:
- CBDCs represent an advanced form of money for the digital economy. In digital form they offer the advantages of central bank money: finality of settlement, liquidity, and integrity;
- digital money should be developed with society’s interests in mind;
- the rollout of retail CBDCs could support open payment platforms and conditions conducive to innovation;
- the ultimate benefits of adopting the new technology will depend on the competitive structure of the underlying payment system and data governance mechanisms;
- CBDCs based on digital identity could improve cross-border payments and curb the risks of currency substitution of local money by foreign currencies as a means of settlement and store of value without official status. Agreements related to multiple digital currencies will require international cooperation for the exchange of identifiers.
The BIS experts believe that an optimal CBDC framework would be a two-tier system, with private banks handling most client-facing work and the central bank overseeing only wholesale payments.
Benoît Coeuré, head of BIS’s Innovation Hub, noted in a press release:
‘CBDCs could form the backbone of a new digital payment system, providing broad access and strict data governance and privacy standards. They are the best way to stimulate public interest in digital money.’
Earlier, BIS, together with the Swiss National Bank and SIX Swiss Exchange tested the use of a wholesale CBDC in settlements of tokenized assets.
The institution will participate in an experiment by the monetary regulators of France and Switzerland on the use of a central bank digital currency in cross-border settlements.
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