Leading central banks across the globe have launched a commission to assess the what, why, and how of creating their own central bank digital currency (CBDC).
The 2020 World Economic Forum (WEF) is currently taking place in Davos, Switzerland and is one of the most influential gathering of world leaders and business innovators on the planet. The theme for this year’s WEF is “Stakeholders for a Cohesive and Sustainable World” and will feature appearances from global leaders who will speak on issues regarding the global economy and overall sustainable growth, as well as key names in the crypto industry, including Ripple CEO Brad Garlinghouse and Facebook‘s head of Blockchain, David Marcus.
Marcus will be part of the public speaking panel dedicated to discussing the importance of digital currencies in today’s financial systems and it would seem discussions have made some promising headway with the Bank of International Settlement announcing the formation of a group aimed at overseeing a possible launch of a central bank digital currency (CBDC) in their respective jurisdictions of participating central banks.
In a press release issued by the European Central Bank, the Bank of Canada, the Bank of Japan, the Bank of England, the Sveriges Riksbank, the Swiss National Bank, the European Central Bank (ECB), and the Bank for International Settlements (BIS) have created a group to be co-chaired by the Head of the BIS Innovation Hub, Benoît Cœuré and the Bank of England’s deputy governor, Jon Cunliffe. The remaining members of the group will comprise senior representatives from the participating institutions.
This group will essentially evaluate the what, how and why of creating a CBDC in their home jurisdictions and share their experiences to develop a viable framework for the economic, functional and technical improvements of the financial industry.
This development comes after the president of the ECB, Christine Lagarde, underlined her support for the bank’s active involvement in the development of a CBDC as a means of addressing the demand for cheaper and faster cross-border payments.
“ECB will continue to assess the costs and benefits of issuing a central bank digital currency that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines … We are looking closely into the feasibility and merits of a CBDC, also because it could have major implications for the financial sector and for the transmission of monetary policy.”
She stated in a recent interview with French business magazine, Challenges.
CBDC: A Long Time in the Making
About a year ago, the BIS published their findings on a survey on central bank digital currency and the conclusion was to proceed with caution, especially since at the time, there was major research going into CBDCs, but only a few central banks had plans to issue one in the short to medium term. In any case, caution and collaboration seem to be the approach of central banks, and the BIS remains optimistic that this could be the best way to head off unintended consequences.
Sixty-three banks from around the globe participated in the BIS survey and around 70% of them were looking to work on CBDCs, so it should come as no surprise that we’re at this monumental stage today. Even the Reserve Bank of Australia will not be left behind on the road to establishing its CBDC. However, China seems determined to lead the pack as its law governing the application of cryptography and password management came into effect on January 1st this year. Will we be seeing a digitized Yuan soon? Only time will tell.
What Does This Mean for Global Cryptocurrency Adoption?
At the 2019 WEF, there was heavy criticism for cryptocurrencies so this announcement by the BIS sure comes as a welcome development among crypto enthusiasts worldwide. Not only does it signal a paradigm shift in perspective about crypto among world governments, but it also has the potential to influence crypto markets. After all, the price of bitcoin rose last October 2019 following President Xi Jinping’s endorsement of blockchain in China. On the other hand, CBDCs may ignite a trade war against bitcoin, ethereum and other cryptocurrencies, so for now, let’s not get too ahead of ourselves.
However, there have been interesting developments in the crypto space with organizations and governments participating in it for quite some time now and this announcement is only the most recent in a long line. Plus even though it is an exciting prospect, we may still be a long way from sovereign digital coins as there are still various regulation loopholes that will need to be filled.