In an advance communication, the Bank of International Settlements (BIS) outlined the factors that will contribute to the adoption of the Central Bank Digital Currency (CBDC). The September 27 report illustrated the need to develop a legal framework that protects the user’s privacy. Also, the BIS underscored the importance of granting the user complete control over assets.
Factors that will Contribute to CBDC Adoption
The BIS report stated that by providing the user the freedom to select a currency that aligns with his need is the critical driver to stimulating the adoption of CBDC. Speaking exclusively at the BIS Innovation Hub conference held in Switzerland, Agustín Carstens emphasized the need to develop a legal framework that supports the development and implementation of the CBDC.
The two-day event was attended by key players in the financial sector seeking to strengthen the operation of conventional and decentralized financial systems. The Switzerland event aimed at promoting innovation and establishing solid collaboration among key players in the financial industry.
In his address, Carstens stated that powers given to central banks will support the legitimacy of the CBDC. The executive argued that the central bank should act according to the law to align its operation with the legal requirements.
Referring to various provisions in the law, Carstens agreed that the legal framework guides the central bank on the type of currency in circulation. The executive admitted the existence of multiple types of money, including ordinary cash, credit balances, and reserve accounts.
Despite the authority given to central banks, the government imposes some measures on the money in supply to hedge inflation and foster economic development.
BIS Pushes for CBDC Adoption
Reflecting on a report issued by the International Monetary Fund (IMF) in 2021, Carstens observed that approximately 80% of the central banks are restricted from issuing their own CBDC in the existing regulations. The IMF report demonstrated that the rules for offering digital currency are still unclear in most regions.
In a subsequent research by the BIS, the bank noted that around 93% of central banks worldwide are currently developing CBDC. The BIS admitted that CBDC development involves multiple stages.
In the report, the BIS argued the critical players in the development of CBDC are exploring ways to meet the growing demand for digital currency. Despite the long pursuit to implement suitable digital currencies, Carstens noted that the lack of a comprehensive legal framework has undermined the development of CBDC.
Community Criticizes CBDC Adoption
The delayed implementation of the CBDC has sparked criticism among the crypto community. Some crypto enthusiasts have recently argued that CBDC has been misused in increasing social credit scores. Regarding the digital currency’s speculation, Carstens stated that CBDC requires a well-defined legal framework.
In his intriguing report, the BIS general manager restated that protecting the user privacy, integrity of financial systems, and granting the user freedom over money are critical elements in the development of CBDC.
The executive noted a difference in patterns in the use of physical cash in different regions. Also, different approaches are adopted in implementing digital payment and retail CBDC to ensure other currencies coexist.
Carstens advised the central banks to explore ways the CBDC could increase value to society. The remarks from the BIS official came when China was campaigning for the adoption of the CBDC. Recently, the Chinese authority integrated digital fiat into the e-CNY software to allow tourists to make payments through Visa and Mastercard.