The report identified and outlined three major principles for the financial system with CBDCs – monetary stability, co-existence with fiat currency, innovation and efficiency
In a major step towards the advancement of Central Bank Digital Currencies (CBDC), a group of countries’ central bank authorities has come together to produce a document that discusses CBDCs at length. According to the Bank for International Settlements, seven central banks have collaborated with the BIS on the report.
The report is aimed at “identifying the foundational principles necessary for any publicly available CBDCs to help central banks meet their public policy objectives,” the BIS said in a statement. The BIS is the oldest global financial institution, operates under the auspices of international law and acts as a bank for national central banks.
A number of countries have expressed interest in CBDCs since the beginning of the year. Though China’s central bank did not contribute to the report, the country is in the most advanced stage of development with trials going on in many cities. Approximately $162 million worth of digital yuan transactions have been completed in the testing phase.
Brazil has also expressed an increased interest in CBDCs in recent times. However, like China, Brazil’s central bank is not a contributor.
The report titled Central bank digital currencies: foundational principles and core features received contributions from various governing bodies, including the Bank of England, the US Federal Reserve and the Bank of Japan.
The BIS clarified in the statement that the involved stakeholders neither included opinions in the report regarding the launch of such a currency, nor did they specify any firm plans for producing such an asset.
“This report is not about if or when to issue a CBDC. Central banks will make that decision for their jurisdictions (in consultation with governments and stakeholders). None of the central banks contributing to this report have reached a decision on whether or not to issue a CBDC,” the report clarified.
Three necessary fundamental principles were identified and outlined in the report. These principles would be crucial in the future of the financial ecosystem, should the central bank digital currency be widely adopted.
“A central bank should not compromise monetary or financial stability by issuing a CBDC; (ii) a CBDC would need to coexist with and complement existing forms of money; and (iii) a CBDC should promote innovation and efficiency,” the report explained.
Furthermore, convertibility, convenience, security, speed, scalability, legal soundness and several other categories were identified as key features of a successful CBDC by the report.
Written by Harshini Nag