BIS Says Central Banks Risk Playing CBDC Catch Up Game

There’s always deep debate about how best to promote innovation in the tech space – particularly when it comes to payments.

The debate boils down to whether that innovation is best fostered through the efforts of the private sector or publicly-led initiatives from regulators and legislators.

In the age of bitcoin, when hundreds of digital coins have been launched, and Diem looms (as part of Facebook’s efforts, of course), central banks have a bit of catching up to do. The inroads made by the private sector might inspire central banks, particularly the U.S., to bring their own digital offerings to commercial and cross-border use cases.

Or risk being out of the loop.

After all, the first-mover advantage regarding payment methods can be a significant hurdle to, well, hurdle.

As noted late last week, Benoit Coeure, who serves as the head of the Bank for International Settlements’ Innovation Hub and is a former central bank official, said in a speech that  ”the time has passed for central banks to get going.”

Read more: BIS Official Urges Central Banks to Adopt Digital Currency

In remarks to the European Financial Forum, he noted that the central banks “have a job to do — delivering price stability and financial stability — and they must retain their ability to do it.”

Time is of the essence, said Coeure, who said in the same remarks that CBDCs would take time to debut — years, even — as stablecoins and any range of other offerings are being devised and debuted by the private sector.

Coeure’s own sentiments are starkly laid out in the remarks: “Money is at the heart of the system and it has to continue to be issued and controlled by trusted and accountable institutions which have public policy — not profit — objectives.” He posed some existential questions that must be considered and grappled with when central banks mull CBDCs.

Among those questions: Whether the new players complement or crowd out banks and whether the central banks should open their accounts to link with these private sector entities that are in the midst of issuing digital coins and stablecoins. He posited, too, that central bank money be used in decentralized finance (DeFi) rather than private stablecoins.

Collaboration and/or Competition  

Beyond deciding the paths of collaboration and competition, according to the remarks, central banks can ensure that well-designed CBDCs will be safe and neutral payment methodologies, “serving as common interoperable platform[s]” around which new payment ecosystems can organize. The design of the digital fiat, specifically, must focus on consumer use cases, public policy objectives and technology. He pointed to Europe, in particular, where he said the region is positioned to “face the future.” Stakeholders, he said, can build on the fast payment systems and the privacy and security afforded by GDPR.

Beyond Europe, we note, India has been developing its own digital currency framework, with a possible digital rupee on its way by the end of the year. As to what’s already out in the field: Sweden this month became the second country in the world to launch a CBDC, on the heels of the Bahamas last year.

Read also: The Bahamas Launches Digital Sand Dollar; Adds To Rise Of Central Bank Digital Currencies

And as reported in this space last month, India is developing the framework for digital currency and is looking to launch a trial for a digital rupee in December.

All of these efforts — and the U.S. Federal Reserve Bank is included in the pantheon — comes as China leads the pack, moving ever closer to the deployment of a digital yuan, with more than $5 billion in CBDC transactions logged, cumulatively, as of the end of June.

And in terms of concentrated efforts, as we wrote last week, Project Dunbar might be the impetus needed for central banks outside of Asia to speed up the development of central bank digital currencies (CBDCs) — including the U.S.  After all, any Fed policy involving CBDCs would seek to keep the dollar’s pre-eminence in trade, especially cross border commerce front and center.

Read more: Project Dunbar Might Light Match Under US CBDC Efforts

The race — between the public and the private sectors — is on and is heated, but the private firms have had a head start.