BIS Calls for Accelerated Development of CBDCs
Posted by Colin Lambert. Last updated: September 13, 2021
In noting that the “financial system is shifting under our feet”, the head of the BIS Innovation Hub, Benoît Coeuré, has called upon central banks to accelerate their work on central bank digital currencies (CBDC).
In a speech to the EuroFi forum, Coeuré said that stablecoins “are knocking on the door” and decentralised finance (DeFi) platforms “are challenging traditional financial intermediation”.
The BIS Innovation Hub has taken part in several CBDC projects, most notably in August, with the Monetary Authority of Singapore and Banque de France, it successfully conducted a wholesale cross-border payment and settlement experiment using CBDC. This was followed earlier this month with plans to develop prototypes for cross-border settlements using CBDCs in association with the central banks of Australia, Malaysia, Singapore and South Africa.
In his speech Coeuré observed that stablecoins may develop as closed ecosystems or “walled gardens”, creating fragmentation. “With DeFi protocols, any concerns about the assets underlying stablecoins could see contagion spread through a system, and the growing footprint of big techs in finance raises market power and privacy issues, and challenges current regulatory approaches,” he stated.
Maintaining a theme from the BIS over recent months, Coeuré stressed that “CBDC will be part of the answer” to questions as to how central banks react to the challenge of stablecoins and DeFi. “A well-designed CBDC will be a safe and neutral means of payment and settlement asset, serving as a common interoperable platform around which the new payment ecosystem can organise,” he added. “It will enable an open finance architecture that is integrated while welcoming competition and innovation, and it will preserve democratic control of the currency.”
Noting that “the time has passed” for central banks to start work on CBDC projects, Coeuré observed that CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. “This makes it even more urgent to start,” he reiterated.
Highlighting that the BIS Innovation Hub has six projects underway in the CBDC space, Coeuré said the European Union was “uniquely placed” to face the future thanks to the European Central Bank’s report on a digital euro “setting the stage”.
He concluded, “A CBDC’s goal is ultimately to preserve the best elements of our current systems while still allowing a safe space for tomorrow’s innovation. To do so, central banks have to act while the current system is still in place – and to act now.”