March 27, 2024
BIS Chief Calls for Modernized Laws to Facilitate CBDC Adoption
Policy & Regulation

BIS Chief Calls for Modernized Laws to Facilitate CBDC Adoption

According to Agustin Carstens, General Manager of the Bank of International Settlements (BIS), out-of-date regulatory frameworks are preventing the globe from releasing much-needed Central Bank Digital Currencies (CBDCs).

The banking head lauded CBDCs’ potential contributions to the world economy in a speech in Switzerland on Wednesday while urging international leaders to change the legislation to recognize them.

“People want their money to be digital and programmable,” Carstens explained. “They want to be able to transfer it across borders quickly, cheaply, and safely.”

Although private market cryptocurrencies (like Bitcoin) have both digitality and programmability, according to the BIS chief, such coins cannot be considered money without the backing and security of the central bank.

In his opinion, stablecoins also fall short of the mark because their stability can’t be ensured. Prominent stablecoins like Circle’s USDC recently lost their linkage to the dollar. Additionally, Terra’s UST stablecoin fully crashed last year.

While retail CBDCs might increase financial inclusion and speed up and reduce the cost of international payments, wholesale CBDCs, which are utilized by the banking system, offer “vast potential in the areas of automation and risk mitigation,” according to Carstens.

“A retail CBDC… could exist alongside cash, offering the public a digital alternative to banknotes and coins,” he further added.

The International Monetary Fund (IMF) discovered in 2021 that around 80% of central banks are prohibited by law from issuing CBDCs or are subject to ambiguous legal regulations.

“It is simply unacceptable that unclear or outdated legal frameworks could hinder their deployment,” Carstens stated. “The work to address these issues needs to begin in earnest. And it needs to proceed at pace.”

According to a CPMI study conducted last year, 93% of central banks are already involved in CBDC-related activities, with more than half either working on pilot projects or conducting actual tests.

Like other digital assets, support for CBDCs in the US Congress is divided along party lines, but this is the opposite of how the parties have welcomed cryptocurrency. Republicans want them completely outlawed, but Democrats are more amenable to their use.

The latter group primarily sees CBDCs as a government spying device that will be used to monitor consumers’ regular transactions. In his address, Carstens argued that privacy must be a “core element” of regulatory frameworks governing CBDCs.

Carsten made it clear that the final judgment on whether CBDC issuance is suitable rests with each jurisdiction.

“It would be unfortunate if we ended up with a fragmented system and legal framework in which different digital currencies don’t interoperate,” he concluded.

Image: Freepik

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