Central banks around the world began looking closely at the issuance of their own digital currencies, known as CBDCs, following the announcement last year by Facebook of the issuance of the digital currency (stablecoin) Libra, which has not yet been made.
According to a report by the International Monetary Fund, central bank digital currencies could lead to the substitution of domestic money from foreign currencies and are likely to boost illicit capital flows if appropriate protection measures are not in place.
Central bank research focuses on the question of who will control money in the future, with many fearing a loss of control over payment systems if currencies issued by private entities such as Libra are widely accepted.
As cited by Reuters according to the IMF report, the consequences for the economy and policy of CBDCs and digital currencies by large technology companies depend on their acceptance, which is difficult to predict, with CBDC still a long way from becoming a reality in the major economies and Libra’s fate unclear. It’s like having a bitcoin bookmaker in your sleeve, added.
CBDCs and stablecoins may increase pressure to “replace currencies”, where foreign currencies replace domestic currencies for internal use, the report notes. Currency substitution can undermine the authorities’ control over domestic liquidity, reducing the stability of money demand and ultimately weakening the impact of monetary policy.
Without adequate protection measures, foreign CBDC and stablecoins can also boost illegal flows and make it more difficult for local authorities to impose controls on capital movements, the IMF added.
The European Central Bank and the central banks of Canada, Britain, Japan, Sweden and Switzerland are working together to evaluate their arguments for their own use of digital currencies.
The six central banks have set up, together with the Bank for International Settlements (BIS), a team to exchange relevant experience.
Six central banks ‘join forces’ to issue digital currencies
“Forces unite” six of the world’s largest central banks with a common purpose.
The European Central Bank and the central banks of Canada, Britain, Japan, Sweden and Switzerland are working together to evaluate their arguments for their own use of digital currencies.
The six central banks have set up, together with the Bank for International Settlements (BIS), a team to exchange relevant experience.
How to evaluate arguments
The group will assess the arguments for central banks’ use of digital currencies – economically and operationally – as well as specific options for their technical design, including their cross-border interoperability. It will also exchange knowledge about developing technologies and will be coordinated with relevant institutions and forums, in particular the Financial Stability Board and the Committee on Payments and Market Infrastructures.
The group will be chaired by Benoit Kere, head of BIS’s Innovation Hub, and John Canlif, deputy governor of the Bank of England.
