The Bank for International Settlements has given its full backing to the development of central bank digital currencies (CBDCs), a move to ensure ‘Big Tech’ does not take control of money.
On Wednesday, BIS which is coordinating many of their discussions on digital currencies, set out recommendations on how a CBDC such as cryptocurrencies, digital dollar should look.
As part of its upcoming annual report it estimated that at least 56 central banks and monetary authorities, representing around a fifth of the world’s population, are now looking at digital currencies as commerce shifts online.
“ Central bank digital currencies (CBDCs) offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy,” said BIS on its website.
Demands on retail payments are changing, with fewer cash transactions and a shift towards digital payments, in particular since the start of the COVID-19 pandemic.
According to BIS, the ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements.
“The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle.”
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The push comes as physical cash use falls globally and authorities look to fend off the threat to their money-printing powers from bitcoin and efforts from ‘Big Tech’ such as the Facebook-backed Diem, formerly Libra.
The BIS acknowledged that the technology could encourage either a virtuous circle of equal access, greater competition and innovation, or it could foment a vicious circle of entrenched market power and data concentration.
The outcome will depend on the rules governing the payment system and whether these will result in open payment platforms and a competitive level playing field.
However, some countries are already well down the track.
The Bahamas became the first to launch a general purpose CBDC, known as the Sand Dollar, in October.
It might seem money is already virtual, as credit cards and payment apps such as Apple Pay in the U.S. and WeChat in China eliminate the need for bills or coins. But those are just ways to move money electronically. China is turning legal tender itself into computer code.
According to the Wallstreet Journal ,cryptocurrencies such as bitcoin have foreshadowed a potential digital future for money, though they exist outside the traditional global financial system and aren’t legal tender like cash issued by governments.
China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.
