A group of seven central banks led by the Bank for International Settlements (BIS) is considering the design of CBDCs without using blockchain technology and also exploring options for the legal status of the future digital currency.
The group of central banks, which is organized and led by the BIS, presented its latest report examining the current policies for wholesale central bank digital currencies (CBDC).
Among the most important issues, the researchers identified the need for digital currency design, considering the possibility of interaction between retail and wholesale versions, and cross-border transactions between different CBDC projects. However, blockchain technology isn’t necessary to implement a potential CBDC system. The disadvantages of blockchain are named as the relatively high cost of transactions and lack of efficiency, while the advantages are programmability and ease of processing micropayments.
Another important issue is the legal status of digital currencies. The researchers can’t agree on whether CBDCs can be recognized as equivalent to existing cash or a new form of money. Potential privacy concerns, which are often appealed to by opponents of CBDCs, also remain unresolved.
According to the paper’s authors, central banks are well prepared to issue CBDCs, but it should be a political decision and a matter of practical necessity. Furthermore, the successful launch of digital currency will be extremely difficult to implement without public acceptance of the instrument because its impact on the economy will directly depend on the scale of acceptance by citizens and the private sector.
It should be noted that the group of researchers includes representatives of the central banks of the United States, the United Kingdom, the European Union, Japan, Switzerland, Sweden, and Canada. The current publication is the fifth from this group of authors, brought together by the BIS in 2020 to capture the general principles and key features they deem necessary for implementing wholesale CBDCs. Further publications addressed narrower issues related to the introduction of digital currencies.
Representatives of the Bank for International Settlements actively study various aspects of CBDCs. The BIS and the Bank of England successfully tested the settlement system based on DLT under the project called Project Meridian. Earlier this year, the BIS reported on the completion of Project Icebreaker, which took place in cooperation with the central banks of Israel, Norway, and Sweden and aimed to test the possibility of combining the various CBDC systems. They also explored the possibility of offline payments using digital currencies as part of Project Polaris.
