Legislators must play their part and implement regulations that support the rollout of central bank digital currencies (CBDCs), says Agustín Carstens, the general manager of the Bank for International Settlements (BIS). While central banks are making significant strides in the pursuit of CBDCs, Carstens says that over 80% of countries have laws that would limit these digital currencies.
At the BIS Innovation Hub-Financial Stability Institute conference in Basel, Switzerland, Carstens talked about the role of wholesale and retail CBDCs in payments, their risks and opportunities, and why the legal systems might be the biggest hurdle in the era of digital payments.
Cash is declining, and consumers are seeking new forms of money, the BIS chief noted. The private sector has issued “new forms of private money” to meet this demand, including digital assets and stablecoins. However, despite their popularity, “these financial instruments are not money,” Carstens stated.
Stablecoins and digital assets lack the backing of a central bank, a supervisory framework, access to the central bank as lender of last resort, and guaranteed finality of payments, he added.
Central banks can meet this demand through sovereign digital currencies. Wholesale CDBCs could aid in automation and risk mitigation while also availing new financial products through tokenized deposits. Retail CBDCs could make payments cheaper, faster, and easier.
However, regulators have failed to keep up despite these leaps in digital payments, Carstens told the attendees. While 93% of central banks are exploring CBDCs, their local regulatory frameworks limit their ability to issue them. Citing an IMF study, he pointed out that over 80% of central banks are either not allowed to issue CBDCs or the legal framework is unclear.
“This needs to be rectified,” stated Carstens, who previously served as the governor of the Bank of Mexico.
“It is simply unacceptable that unclear or outdated legal frameworks could hinder their deployment. The work to address these issues needs to begin in earnest. And it needs to proceed at pace,” he added.
The regulatory ambiguity towards CBDCs has been one of the biggest hurdles to their development and adoption. A few countries have moved to remedy this.
China passed a draft law in 2020 recognizing the digital yuan and banned all its competitors. In July this year, Russia’s State Duma passed a similar law, paving the way for issuing a digital ruble. The European Commission published a draft law in June for a digital euro as well.
However, most countries have yet to make any moves on the regulatory front. In the U.S., a digital dollar remains one of the many contentious issues dividing lawmakers along party lines. While Democrats are open to the CBDC, Republicans have deemed it a surveillance tool by the government, with some, like Florida, banning its use in the state.
Florida isn’t the only jurisdiction that has moved to insulate its citizens from forced usage of a CBDC. In Slovakia, lawmakers amended the constitution to embed cash usage in the country’s laws, fearing that the EU would force the people to abandon the local currency for the digital euro.
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