The Group of Seven (G7) nations plans to intensify their efforts to create a global central bank digital currency (CBDC) framework in a bid to streamline the ambitions of different countries.
The G7 disclosed its plans at a conference organized by the Peterson Institute for International Economics (PIIE), where speakers noted the nature of global CBDC development. Japan’s Vice Minister of Finance for International Affairs, Masato Kanda, stated that launching CBDCs pose significant risks to the financial systems of countries.
“We have to address risks from the development of CBDC by ensuring factors such as appropriate transparency and sound governance,” Kanda said.
The Japanese minister confirmed that CBDCs would be a core focus for the G7 countries to serve as a good example to developing countries worldwide. Top of the agenda for the G7 is the creation of minimum operating standards, including the G7 public policy principle for retail CBDCs.
Out of all the G7 countries, Japan has made the most impressive forays into developing a CBDC after completing an initial two-year experiment on the viability of the digital yen. The Bank of Japan recently announced the launch of a CBDC pilot, with the bank’s governor expressing confidence in the ability of the digital yen to co-exist with other payment mechanisms.
Other G7 countries like the U.K., U.S., and Canada have yet to make significant strides in their CBDC developments, like Japan. In the U.S., congressmen are pushing for bills to halt any plans for a digital dollar over fears of greater government control and privacy concerns.
As head of the summit for one year, Japan will be keen on using its expertise to mitigate the risks associated with launching CBDCs. Analysts have pointed out that CBDCs could trigger bank disintermediation as users convert bank deposits into CBDCs, negatively hampering their abilities to offer loans to users.
An uneven approach to CBDC development
With over 110 countries dabbling in CBDC development, an uneven pattern has emerged as countries seek to launch digital currencies based on the peculiarities of the financial systems.
Some countries have discarded the option of launching retail CBDCs to focus on wholesale offerings, while others are juggling both forms of CBDCs. Countries like Russia and India have hinted at a desire to launch CBDCs with cross-border functionalities, but some central banks are opting for a closeted approach.
A common denominator in the race for CBDC development is the pining by commercial banks for a greater role to play in their issuance. The commercial banks argue that they are in the best position to ensure the success of CBDCs, given their extensive experience dealing directly with consumers.
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