BIS and Central Bank Research Identifies Principles and Core Features For CBDC Issuance
The BIS along with seven central banks has released a report identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives.
The report from the Bank for International Settlements outlines the foundational principles and core features of a central bank digital currency (CBDC) but fails to give an opinion on whether to issue the sovereign backed digital currencies.
According to the release by the BIS on Oct.9, 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, and highlights three key principles for a CBDC.
These three key principles are:
- Co-existence 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; and,
- Features should promote innovation and efficiency.
The report asserts that the seven central banks will continue to work together on CBDCs, without prejudging any decision on whether or not to introduce CBDCs in their jurisdictions.
Sir Jon Cunliffe, working group co-chair, Deputy Governor of the Bank of England and Chair of the Committee on Payments and Market Infrastructures said:
“This report is a real step forward for this group of central banks in agreeing the common principles and identifying the key features we believe would be needed for a workable CBDC system […] This group of central banks has built a strong international consensus which will help light the way as we each explore the case and design for CBDCs in our own jurisdictions.”
Based on the three identified principles, the group has deduced that CBDC systems in the future must include four core features:
- 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; and,
- Have an appropriate role for the private sector, as well as promoting competition and innovation.
Benoît Cœuré, working group co-chair and Head of the BIS Innovation Hub said:
"A design that delivers these features can promote more resilient, efficient, inclusive and innovative payments. Although there will be no 'one size fits all' CBDC due to national priorities and circumstances, our report provides a springboard for further development of workable CBDCs."
According to the report, further development of CBDCs requires a commitment to practical policy analysis and applied technical experimentation. While the BIS asserts that this has already started, the speed of innovation in payments and money-related technologies requires this collaborative experimentation to be placed under higher priority.
Christine Lagarde, President of the European Central Bank, chair of the group of central bank governors responsible for the report said:
“While technology is changing the way we pay, central banks have a duty to safeguard people's trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation. The present report is a convincing proof of this international cooperation.”
The BIS and the consortium of seven central banks will continue to explore open questions around CBDCs and the challenges of cross-border payments, as well as continuing outreach domestically and with other central banks to foster informed dialogue on key issues. Work by the BIS Innovation Hub, which serves the broader central banking community, will contribute to this objective.
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