Central bank digital currencies (“CBDC”) has been one of the hottest topics of 2020. We reported recently that the Bahamas planned to roll out its e-currency in October. China has probably been the most aggressive in developing plans for a future launch of a CBDC, the digital yuan. On October 9, 2020, the BIS and seven central banks released a report concerning the issuance of CBDCs. The report, Central bank digital currencies: foundational principles and core features, was compiled by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS.
As the Report explains, the common motivation for exploring a general purpose CBDC is its use as a means of payment, especially as a complementary form of central bank money that could support a more resilient and diverse domestic payment system. The Report makes clear that it is not about if, or when, to issue a CBDC and that none of the central banks contributing to the Report have reached a decision on whether to issue a CBDC. Instead, the Report advances certain foundational work by outlining common principles and the key features a CBDC and supporting infrastructure would need in order to contribute to central bank public policy objectives.
There are three key principles for a CBDC:
- Coexistence with cash and other types of money in a flexible and innovative payment system.
- Any introduction should support wider policy objectives and do no harm to monetary and financial stability.
- Features should promote innovation and efficiency.
The possible adverse impact of a CBDC on bank funding and financial intermediation, including the potential for destabilizing runs into central bank money, has been a concern of central banks. Any decision to launch a CBDC would depend on an informed judgment that these risks can be managed, likely through some combination of safeguards incorporated in the design of a CBDC and financial system policies more generally.
The Report identified the following core features of any future CBDC system:
- Resilient and secure to maintain operational integrity.
- Convenient and available at very low or no cost to end users.
- Underpinned by appropriate standards and a clear legal framework.
- Have an appropriate role for the private sector, as well as promoting competition and innovation.
The group of central banks committed to continue to work together on CBDCs,