BIS warns central banks on digital currency issuance

BIS warns central banks on digital currency issuance

Central banks should steer clear of developing their own digital currencies for issue to the general public the Bank for International Settlements has warned.

The central bankers bank says that while a bank-developed digital currency might hold promise in the wholesale markets, the issue of coins to the public at large has implications for financial stability and monetary policy.

Benoît Coeuré, chair of the BIS Committee on Payments and Market Infrastructures (CPMI) says: "Central bank digital currencies could help make settling trades of securities and foreign exchange more efficient in the future. But more work and experimentation would be needed to explore these benefits.

"General purpose central bank digital currencies could revolutionise the way money is provided and the role of central banks in the financial system, but these are uncharted waters, with potential risks. This report is a starting point for further discussion and research and will help countries make choices given their own circumstances."

Central banks the world over are are seriously studying whether digital currencies backed by global central banks can be used as a legal tender alongside fiat notes and coins.

Research from the Bank of Canada suggests a central bank digital currency (CBDC) has the potential to become a cheaper and easier to use alternative to cash and cards. However, the study notes that a shift from bank deposits to CBDC could also have an impact on bank funding and credit provision, which could hurt financial stability.

The Bank of Englabnd's Mark Carney says the BIS perspective is an important contribution to the G20 discussion on digital currencies, given central banks' mandate to safeguard financial stability for the public.

"Technological developments have raised questions about the feasibility and desirability of combining distributed ledger technology with the trust inherent in fiat currencies to create a central bank digital currency available to all," he says. "As set out in this report, the policy issues that this would raise, for central banks and society more generally, need careful consideration. A more immediate priority is how to use these new technologies to meet the current demand for fully reliable, real-time payments."

Comments: (3)

Jeremy Light
Jeremy Light - A Payments Fintech - London 13 March, 2018, 12:16Be the first to give this comment the thumbs up 0 likes

The BIS evidently have not read my blog from yesterday!

The issues they raise are solvable by issuing CBDC/crypto-cash through commercial banks rather than directly to the public and businesses. In the same way central banks do with banknotes, distributed through commercial bank branches and ATMs.

Central Banks should also consider the wider picture of open innovation for the good of society, beyond monetary policy and mechanisms. 

Behzod Sabirov
Behzod Sabirov - Sanscrit LLP - Almaty 14 March, 2018, 05:59Be the first to give this comment the thumbs up 0 likes

As long as CBDC's are backed with traditional currency they are free of any hidden risks. Look at Kazakhstan which introduced its electronic tenge (EKZT) long before the crypto-hysteria. EKZT is backed with KZT 1-to-1 and is also the legal tender.

Unless the BIS is wary about the likes of bitcoin issued by central banks not backed with tangible assets, and thus volatile.

A Finextra member
A Finextra member 20 March, 2018, 11:21Be the first to give this comment the thumbs up 0 likes

Is there not a danger that all we are doing by creating a 1-1 Fiat/CBCD world is to initiate a huge processing overhead for something that works ok right now..  Currency moves digitally....     Fiat currencies transmitted using Blockchain does not necessarily need a cryptocurrency equivalent... or have i missed something that i just cant see......  like i couldnt see the emperors new clothes?

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