Reply To: Summary of RBI Concept Note on Central Bank Digital Currency (07/10/2022)

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advtanmoy
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Central bank digital currencies: foundational principles and core features (BIS)

Central banks have a mandate for monetary and financial stability in their jurisdictions and, explicitly or implicitly, to promote broad access to safe and efficient payments. A core instrument by which central banks carry out their public policy objectives is providing the safest form of money to banks, businesses and the public – central bank money.

This money acts as a means of payment, unit of account and store of value for a jurisdiction. A
common unit of account is a public good that allows goods and services to be exchanged and financial transactions to be settled efficiently and safely. Today, central banks provide money to the public through cash and to banks and other financial companies through reserve and settlement accounts. In this way, some of the smallest and largest payments in an economy are carried out using central bank money. Yet the ongoing digitalisation of the economy is changing the way people pay. The use of cash, currently the only form of central bank money available to the public, is falling in many jurisdictions. The Covid-19 pandemic may be accelerating this trend. Taking cash’s place is private digital money and alternative payment methods.

Many central banks’ public policy objectives have remained broadly unchanged for the last
hundred years. Yet the significant changes of that period have required central banks to innovate and evolve in how they met their objectives. A potential further evolution being considered is through issuing a new form of money: central bank digital currency (CBDC). A recent survey found that 80% of central banks are engaged in investigating CBDC and half have progressed past conceptual research to experimenting and running pilots . To coordinate and consolidate some of this work, the central banks of Canada, Japan, Sweden, Switzerland, the United Kingdom and the United States have come together, along with the European Central Bank and the Bank for International Settlements. This report summarises where they collectively stand.

Arguments for and against issuing a CBDC and the design choices being considered are driven
by domestic circumstances. There will be no “one size fits all” CBDC. Yet domestic CBDCs would still have international implications. Cooperation and coordination are essential to prevent negative international spillovers and simultaneously ensure that much needed improvements to cross-border payments are not overlooked.