The Bank for International Settlements (BIS) has warned Central Banks across the world to steer clear of developing their own digital currencies for issue to the general public.
The central bankers’ bank said 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.
Chairman of the BIS Committee on Payments and Market Infrastructures (CPMI), Benoît Coeuré said: “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” he said.
Central banks the world over 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 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 England’s Mark Carney said 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.”
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