The head of the Bank for International Settlements (BIS) Innovation Hub has urged that his fellow central bankers ‘roll up our sleeves and accelerate our work on the nitty-gritty’ of central bank digital currency (CBDC) design.
Benoît Coeuré delivered a speech entitled ‘Central bank digital currency: the future starts today’ at a conference organised by a European think-tank in the Slovenian capital Ljubljana.
Coeuré, a regular speaker at international events on the hot topic of CBDC, told the audience at the Eurofi Financial Forum that central banks were “stepping up efforts to prepare the ground for digital cash”.
He framed his speech in the context of broader trends in digital money, for example the rise of so-called ‘Big Techs’ in payments and what is known as ‘decentralised finance’, as opposed to focusing on technical aspects. But on CBDCs – which he described as “part of the answer” to the increasingly dynamic global payments ecosystem – he urged that “the time has passed for central banks to get going”.
“We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design,” he said. “CBDCs will take years to be rolled out, while stablecoins and cryptoassets are already here. This makes it even more urgent to start.”
‘Safe and neutral means of payment’
The Bahamas launched a fully deployed a digital version of a fiat currency – the ‘Sand Dollar’ – almost a year ago while in April this year, Eastern Caribbean nations rolled out blockchain-based digital currency ‘DCash’ within their currency union.
China is at an advanced stage of developing its CBDC, known as the e-CNY or ‘digital yuan’, but most major nations are yet to commit to launching state-backed digital money, albeit that an increasing number of central banks worldwide have built internal teams devoted to the topic – and indeed started experimenting or trialling CBDCs in limited ways.
“A well-designed CBDC will be a safe and neutral means of payment and settlement asset, serving as a common interoperable platform around which the new payment ecosystem can organise,” Coeuré told the event in Slovenia, which is holding the presidency of the EU Council during the second half of 2021. “It will enable an open finance architecture that is integrated while welcoming competition and innovation. And it will preserve democratic control of the currency.”
The European Central Bank’s (ECB) governing council gave the green light in July to a multi-year project to explore the creation of a digital version of the euro. An investigation phase will run for 24 months. A decision about whether or not to actually issue a digital euro will only come at a later stage. ECB president Christine Lagarde told Bloomberg TV earlier this year that a digital euro could come into being in about four years or “maybe a little more” after the governing council’s decision.
Three aspects to consider
Coeuré went on to describe the “ideal product” as being “in a sweet spot at the intersection of desirability, viability and feasibility”, explaining that “when applied to CBDCs, these translate into three dimensions: consumer use cases, public policy objectives and technology.”
In respect of consumer expectations, he said that “payment data must be protected” and that “digital functions that are not available with cash can be developed, such as programmability or viable micro-payments.”
In respect of public policy objectives, he said that CBDCs are a tool to help central banks with their mission of protecting monetary and financial stability by “enhancing safety and neutrality in digital payments, financial inclusion and access, innovation and openness”. But he acknowledged that important questions remain including how CBDC systems can interoperate and whether “offshore use be discouraged”.
In respect of design choices, which he described as a “complex” area, Coeuré spoke of “a hands-on operational and oversight role for central banks and public-private partnerships to develop the core features of the CBDC instrument and its underlying system”.
Multiple challenges to banks’ business models
Coeuré’s speech, delivered on 10 September, included remarks on the broader dynamics affecting the payments world, specifically the co-existence of public and private money.
“Big Techs are expanding their footprint in retail payments,” he said. “Stablecoins are knocking on the door, seeking regulatory approval. Decentralised finance (DeFi) platforms are challenging traditional financial intermediation. They all come with different regulatory questions, which need fast and consistent answers.”
“Banks are worried about the implications of CBDCs for customer deposits,” he said. “Central banks are mindful of these concerns and are working on answers. They see banks as part of future CBDC systems. But make no mistake: global stablecoins, DeFi platforms and Big Tech firms will challenge banks’ models regardless.”
The BIS Innovation Hub and Monetary Authority of Singapore (MAS) organised a webinar entitled ‘Retail CBDCs: Global Landscape’ the previous day (9 September) during which BIS’s principal economist, Raphael Auer, presented CBDC architectures, review approaches being pursued around the globe and lessons learnt.