The Bank for International Settlements (BIS) has published a new research paper into the prospects of a central bank digital currency (CBDC) in partnership with seven banking regulators.
The research paper received input from the central banks of Japan, Sweden, Switzerland, England, the United States, Canada, and the European Union. Focusing solely on retail CBDCs, the paper explored potential legal issues and the need to engage with stakeholders for optimum results.
Contributors to the paper confirm that private innovation is integral to the long-term success of retail CBDCs, underscoring the need for regulators to engage with stakeholders. The paper identified several means for central banks to achieve engagement including public consultations, surveys of payment behavior, case studies, and stakeholder forums.
The BIS and contributing central banks noted that the launch of retail CBDCs may pose a number of novel legal issues for local jurisdictions. Policymakers will have to grapple with the challenge of determining the concepts of settlement and payment finality in the system and the handling of data governance and privacy.
While conferring the central bank with the authority to issue retail CBDCs might be a seamless legislative process, complexities may arise regarding competition law implications and non-resident access.
“Further attention may also need to be devoted to the use and design of any limits on holdings of CBDC, and rules governing CBDC’s convertibility into other means of payment,” read the report. “International cooperation will be an important consideration in the establishment of rules governing non-resident access to a CBDC.”
Another issue raised in the paper is the use of distributed ledger technology (DLT) for building CBDC systems. The use of DLT is not “deemed essential” to the working of a CBDC system but may offer several benefits including the ease of programmability and micropayment processing, according to the paper.
Still unsure about retail CBDCs
It is important to note that all the central banks involved in the BIS report are yet to make a final decision on whether or not they will launch CBDCs. Despite their indecision, a significant majority are engaged in the early stages of CBDC pilots to explore multiple use cases.
“To date, none of our jurisdictions have yet decided to proceed with the issuance of a retail CBDC,” according to the BIS paper. “CBDC issuance and design are sovereign decisions for relevant authorities based on their assessment and a jurisdiction’s circumstances.”
This is the fifth paper released by the participating central banks and the BIS in three years. The first, released in 2020, established several key principles while the other probed into deeper questions to be faced following the release of a CBDC launch.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Blockchain provides perfect foundation for CBDC
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