LONDON (Reuters) – The Bank for International Settlements has given its full backing to the development of central bank digital currencies (CBDCs), saying they are needed to modernise finance and ensure ‘Big Tech’ does not take control of money.
Dubbed the central bank to the world’s central banks, the BIS, which is coordinating many of their discussions on digital currencies, set out recommendations on Wednesday on how a CBDC such as a digital dollar, euro, yen or yuan 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.
“The train has left the station,” said Benoit Coeure of the BIS, referring to the move towards central bank digital currencies and its support. “It is not that we are getting carried away, we are just looking around”.
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.
Without CBDCs, digital money would become increasingly dominated by big tech firms, Coeure warned, as they would leverage enormous social media user bases.
“That is a place where you don’t want to be, where governments don’t want to be,” Coeure said, describing it as a loss of control of sovereign money.
Graphic: The rise of digital currencies – https://fingfx.thomsonreuters.com/gfx/mkt/azgvooqxwvd/Pasted%20image%201624410751545.png
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. China has a number of ongoing trials and Switzerland and the Bank of France have announced Europe’s first cross-border experiment.
Coeure’s BIS colleague Hyun Song Shin said authorities will have to decide whether citizens need digital IDs to use CBDCs or go down a token-based route that many cryptocurrencies use to keep transactions more anonymous.
In the view of the BIS, the ID system would be the “better way to go” Shin and Coeure said. One reason being that it would prevent people using digital currencies from countries other than their own such as the safe-haven dollar.
Most experts think fully functioning digital dollars or euros are still at least two years away, but setting global rules around CBDCs is a highly political and heating up.
“The new trade wars are technology wars,” Coeure said, stressing CBDCs should not be part of that.
Graphic: how a digital currency works – https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmzdlypr/Pasted%20image%201624413263164.png
(Reporting by Marc Jones; Editing by Alexander Smith)