Tuesday’s paper by the Bank for International Settlements (BIS) focused on central bank digital currency, or CBDCs. It also discussed how these currencies can be used to achieve policy goals for financial inclusion. Interviews with nine central banks, which are currently exploring retail CBDCs, were used to inform the paper. It examined common goals across various economic development levels as well as the challenges and opportunities for inclusion.
Two distinct approaches were identified in the paper to CBDC. While some central banks see digital currency as a way to spur innovation and develop, others view it as an addition to existing initiatives. All central banks stressed the importance of stakeholder education and acceptance. This applies to both consumers and service providers.
Data privacy and related issues such as money laundering and financing terrorism were deemed top challenges. Serving the vulnerable — including children, the elderly, and people with disabilities — was also a priority.
While there were some challenges such as geographic isolation and digitization levels that varied among central banks, many CBDC design features were identified as crucial to financial inclusion across all spectrums. This context also mentioned the promotion of a two-tiered system of payment with private sector participants, interoperability across multiple functions and borderlines, and appropriate regulation.
The paper discussed the central banks of Uruguay, Canada, China and the Eastern Caribbean. The research was also conducted by the World Bank.
The BIS is strongly defending the central bank’s role in the digital economy, and the necessity for regulation of cryptocurrency. The BIS recently concluded a pilot project called Project Dunbar with the central banks from South Africa, Malaysia, Singapore, and Singapore to establish an international settlements platform.