Last year, Facebook’s plan to launch a digital currency shocked policymakers, and then central banks discussed how to create their own virtual currency.
Now they have proposed a rough framework for how such a system works. Last Friday, the Bank for International Settlements (Bank for International Settlements) and seven central banks including the Federal Reserve (Federal Reserve), the European Central Bank (European central Bank) and the Bank of England (Bank of England) issued a report listing Some key requirements of the central bank’s digital currency.
Among the recommendations made by central banks, there is one point that CBDC (Central Bank Digital Currency) should complement—not replace—cash and other forms of legal tender, and they should support rather than harm currency and financial stability. They say that digital currencies should also be safe, as cheap as possible-if not free-to use, and “play an appropriate role for the private sector.”
The report comes as central banks around the world are considering their own digital currencies. The blockchain technology that supports cryptocurrencies such as Bitcoin has been touted as a potential solution. However, cryptocurrencies have received close attention from central bank officials, and many fear that they open the door to illegal activities such as money laundering.
The Riksbank is working with consulting firm Accenture to test its proposed “e-krona” currency.
Benoit Coeure, a former official of the European Central Bank (ECB) and currently leading the BIS innovation work, said: “Designs with these characteristics can promote more flexible, efficient, inclusive and innovative payments.”
“Although due to the priorities and specific circumstances of each country, there will not be a CBDC with’one bird’s eye’, our report provides a springboard for further development of a viable CBDC.”
It is worth emphasizing that these central banks have not yet stated whether they and other institutions should issue digital currencies; they are still studying whether such virtual currencies are feasible. Proponents of digital currency say that digital currency can help those who do not have a bank account to get a new life, thereby enhancing financial inclusion. But some people worry that this may exclude commercial banks.
Last year, after Facebook launched its own version, libra, the central bank’s work on digital currencies seems to have been strengthened. Libra has received joint support from companies such as Uber and Spotify. The troubled project encountered strong regulatory opposition and the departure of prominent funders such as Mastercard and Visa.
The Libra Association, the organization that oversees this initiative, later scaled back its approach and chose a multi-currency-linked cryptocurrency instead of the previously proposed single digital currency backed by multiple currencies.