Agustin Carstens, general manager of the Bank for International Settlements (BIS), stressed the need of legal frameworks in the acceptance of Central Bank Digital Currencies (CBDCs) in a key speech at the BIS Innovation Hub conference in Switzerland on September 27. “The legitimacy of a CBDC will be derived from the legal authority of the central bank to issue it,” declared Carstens clearly. That power must have a solid legal foundation.
Disturbingly, a 2021 IMF paper unveiled that almost 80% of central banks globally encounter obstacles either due to existing laws or unclear legal frameworks when it comes to issuing digital currencies. Carstens termed this situation unacceptable, given that a staggering 93% of central banks worldwide are actively exploring CBDC development to meet the surging public demand for digital fiat.
Carstens also addressed valid concerns regarding the potential misuse of CBDCs for social credit scoring. He stressed the necessity for a comprehensive framework that delineates rights and obligations. According to Carstens, three core elements are imperative for CBDCs: safeguarding user privacy and data, ensuring the integrity of the financial system, and upholding people’s right to choose between CBDCs and other forms of money.
Additionally, Carstens acknowledged the varying trends among different countries concerning cash usage and the adoption of digital payments. He emphasized that retail CBDCs should exist alongside cash and commercial bank money, offering a broader spectrum of choices for society rather than limiting them.
The BIS recently highlighted its Project Sela, a ground-breaking program addressing the security and privacy issues of CBDCs, as another noteworthy accomplishment. The goal of this program is to provide safe and private transaction settlements on ledgers maintained by central banks.
Earlier in 2023, the BIS, in collaboration with central banks from Israel, Norway, and Sweden, introduced Project Icebreaker, a cross-border payment model that significantly reduces fees and transaction delays through a novel “hub-and-spoke” approach. This innovative strategy effectively minimizes liquidity risks, further propelling the global adoption of CBDCs.
In June 2023, the BIS introduced an ambitious blueprint for a global “unified ledger” that supports CBDCs and tokenized assets. This transformative plan envisions programmable platforms overseen by central banks, driving the tokenization of monetary systems and promising a more efficient and secure global financial ecosystem.
With the BIS leading the charge in shaping the future of CBDCs, the global financial landscape stands on the brink of transformative changes, with privacy and monetary freedom emerging as pivotal principles.