BIS: CBDC's effectiveness will ensure public-private cooperation

BIS: CBDC's effectiveness will ensure public-private cooperation

The Bank for International Settlements (BIS) has reported on the interim results of CBDC studies, in which the institution partners with seven central banks.

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These include the central banks of the European Union, the UK, Canada, Japan, Switzerland, Sweden and the US Federal Reserve. BIS previously published the results of the joint work in October 2020.

Continuing the collaborative research, the group came to several key conclusions. First, for a CBDC system to be effective, public and private sector actors need to cooperate.

In doing so, the experts noted that:

  • Involvement must be balanced to achieve the necessary results and innovation;
  • CBDC's internal interoperability is needed for a smooth flow of digital assets between payment systems;
  • any outsourced functions by the central bank will require careful oversight on its part;
  • the existence of intermediaries means that privacy concerns will play a major role.

Second, the two-tiered CBDC system will help to better anticipate user needs and innovate, according to experts. They pointed out that digital payments in CBDC money can provide cheaper transactions, increased levels of autonomy, security and privacy.

According to the group, CBDC properties will enable commercial entities to create unique, unified payment products aimed at a narrower segment of the population. The regulator will have to support a diverse ecosystem of intermediaries that will provide choice, competition and innovation.

Third, maintaining the stability and security of digital currencies will require careful design and implementation. Experts stressed that the CBDC implementation process will have implications for financial intermediation, but regulators have the tools and expertise to make the impact manageable.

They cited having sufficient time to do so as a key factor. Too rapid an introduction of digital currency could pose additional risks.

Recall that the BIS had earlier recommended that central banks speed up the development of CBDCs because of the threat from the cryptocurrency industry.

The institution called for more attention to the use of digital currencies in cross-border transfers. Citing test results, BIS experts noted that CBDCs could reduce the time of such transactions to seconds and cut their cost in half.

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