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The Bank for International Settlements (BIS) and a group of central banks have released a paper detailing their “current policy outlook” for 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 have teamed up with the BIS to produce a concise document in 2020 that sets out the general principles and key features they deem desirable in an rCBDC. This was followed a year later by three reports on the narrower issues that the rCBDC would face.
Related: CBDC on the Horizon: Current Status of CBDC Initiatives Worldwide
The last paper basically continued the discussion of the previously discussed policy elements. The first is stakeholder engagement, which he concluded would depend on several mechanisms. Engagement with legislators will be essential as “pending legal issues related to the CBDC will be largely governed by 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 identifies seven such legal questions, starting with whether rCBDC will be the legal equivalent of cash or a new form of money. Privacy, a contentious issue in many of the current public debates about CBDCs, is also on the list.
Central banks are well prepared for issuing CBDCs:
“Central banks already have experience building and managing the complex value chain for the mass-market retail product, banknotes.”
The paper states that the participation of the private sector in building the CBDC ecosystem is a political decision as well as a practical matter. In addition, public acceptance will be critical to the successful deployment of a CBDC, and this role needs to be understood up front:
“Certain policy goals can only be achieved if CBDC adoption reaches or exceeds a certain level. This, in turn, may affect the functionality, design of the solution, and use cases for the CBDC.”
Critical design issues include tailoring retail and wholesale CBDC interactions and cross-border interactions between CBDCs. Blockchain technology is “not considered necessary for the operation of a potential CBDC system,” the document says, and may not be the cheapest or most efficient technology for all types of transactions. This fact must be balanced against the benefits of programmability and the ease of processing micropayments that blockchain provides.
None of the central banks that participated in the study are currently planning to implement CBDCs.
