As regulators around the world consider the risks and benefits of adopting a central bank digital currency, central banks believe that a digital form of a country’s fiat currency “could promote financial inclusion in the context of its payment properties,” explained authors from the Bank for International Settlements and the Bank of International Settlements. World Bank in a recent report.
The report was based on a survey of nine central banks at different stages of exploring CBDCs, including those in the Bahamas, Canada, China, the Caribbean, the Philippines, Ghana, Malaysia, Australia. Ukraine and Uruguay. The BIS and World Bank surveyed these central banks and found that existing barriers to financial inclusion, design features of CBDCs, and regulatory hurdles were among the top talking points.
These design features of CBDCs, in particular, aim to promote innovation in the so-called two-tier payment system (a central bank issues digital currency to commercial banks and then distributes them to consumers), as well as to offer a low-cost public sector technology base and facilitating enrollment and education, according to the study.
While domestic retail payment services and cross-border payments can be expensive, “with CBDCs, central banks can help accelerate digital payment adoption, especially where market size and profit potential are insufficient. to drive private sector innovation, or where established oligopolies prevent entry,” the authors said, adding that some central banks are considering issuing a CBDC given unequal access to payment services.
Issuance of CBDC may require modification of new regulations or existing laws for “effective oversight” of CBDC participants. Data privacy laws and anti-money laundering laws may need to be reviewed if CBDCs come into play, according to the study. This is in addition to potential legislative changes regarding taxation, foreclosure and the elimination of digital wallets in the event of bankruptcy.
The banks in the survey acknowledge that CBDCs are not a panacea. One of the main arguments for adopting a CBDC is the potential to promote financial inclusion. However, populations targeted for inclusion may be averse or lack access to the technology. “Low-income populations and those living in remote areas continue to face barriers to digital payments,” the report said.
Meanwhile, the United States is also wondering what the implications would be if the Federal Reserve created a CBDC. On August 5, 2021, Federal Reserve Governor Christopher Waller said he was “very skeptical” of CBDCs and “I’m not yet convinced that a CBDC would solve all the problems” that CBDCs Existing technologies don’t already solve it, he mentioned. Fast forward about a year, New York Fed President John Williams said he sees a role for stablecoins in payments, though he noted some “fundamental flaws” for the wider universe of cryptocurrencies.
In April, the United Kingdom set out measures to regulate stablecoins as a means of payment.