The Atlantic Council recently published a document calling for global interoperability standards around central bank digital currency (CBDC), citing concerns that a lack of such standards could create CBDC “walled gardens.”
“As countries worldwide explore CBDCs’ potential for an advanced and seamless digital infrastructure, a unified standard framework will become necessary to foster harmony, quality, and trustworthiness worldwide,” the document said.
“This future brings the promise of enhanced efficiency, inclusion, transparency, and choice to global payments. To fulfill this promise, the international community must develop interoperability standards that prioritize a fast, highly scalable, and resilient architecture.”
The Atlantic Council is an American non-partisan think tank focused on international affairs, whose stated mission is to galvanize United States leadership and engagement in the world, “in partnership with allies and partners, to shape solutions to global challenges.”
Its April 10 publication, titled “Standards and interoperability: The future of the global financial system,” was intended as “a foundational step toward a broader, global dialogue about digital asset standards.”
As well as calling for global standards for CBDCs, the document explored existing projects and standard-setting initiatives around the globe, including by the International Monetary Fund (IMF), the Bank for International Settlements (BIS), and the Financial Action Task Force (FATF).
“The deployment of domestic CBDCs must not be considered in isolation, or the result will be walled gardens that stand apart from global commerce and economic trends,” the document said.
“Creating a CBDC in a silo is unlikely to achieve the desired outcomes in the short or long term, as it will replicate the friction of the existing payments systems. CBDCs’ potential to provide a simpler and more efficient way to move money can only be realized as long as the CBDCs can interoperate with one another.”
CBDC standards
In the publication, the Atlantic Council defined standards as “the technical, regulatory, and governance benchmarks needed to achieve interoperable systems in the long run.”
To achieve effective standards, said the authors, requires collaboration from governments, private sector, consumers, regulators, and civil society groups. The Atlantic Council also outlined several themes to use as a framework for CBDC standards, namely: governance; privacy and data protection; competition and consumer protection; global impact and sustainability; and transferability and accessibility.
“Standards specific to CBDCs are not unchanging; they must reflect and be responsive to technological development, market shifts, and experience,” argued the document.
“Standards are established by technical and governance bodies, often made up of diverse stakeholders, and reflect a consistent floor for pragmatic implementation across jurisdictions. Therefore, they must have built-in flexibility to adjust to changing circumstances across a variety of market structures.”
One issue noted by the Atlantic Council was that emerging economies are often overrepresented when it comes to early embracers of new technologies but underrepresented in the standards-setting process. The implication is that in order to come up with fair and effective global standards, more collaboration with and input from emerging economies would be beneficial.
The paper concluded with a call to action for both public and private stakeholders to actively engage in standard-setting efforts, with the goal of ensuring interoperability and efficiency, “as well as embedding democratic norms, values, and rules of law in CBDCs.”
However, it emphasizes that any standards created must also be flexible to the rapidly advancing technology, as well as economic and social tumult.
“Standards ensuring consistency and seamless functionality are not static; they must be flexible enough to accommodate advancements in digital currency technology, shifts in economic priorities, and changing societal perspectives on digital assets,” the document urged.
The Atlantic Council’s publication comes a few days after the IMF’s Deputy Director for the Monetary and Capital Markets Department (MCM), Dr. Dong He, said that tokenization can be a force for financial inclusion while cautioning against allowing monetary innovation to fragment the global financial system.
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: CBDCs are more than just digital money
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.
