BIS-Backed Central Banks’ CBDC Framework Release Coincides With PBoC’s Digital Yuan Test in Shenzhen
Friday October 9 did not only see the People’s Bank of China (PBoC) announce it has made 50,000 “red packets” available to citizens in Shenzhen but also marked the day when the Bank of International Settlements (BIS) revealed that seven central banks had teamed to create their own vision of national digital currencies titled “Central bank digital currencies: foundational principles and core features.”
No official conduct ties the two events together thus making them stand independent of one another.
It’s the latest of China’s effort to show its commitment the planned central bank digital currency (CBDC) project which has been discussed could be a possible threat to the U.S. dollar as well as enhance China’s dominance globally starting with its influence within the Belt and Road Initiative (BRI) member countries.
Meanwhile, unlike China, the joint report created by The Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve and the BIS last week points out that they will continue to investigate the feasibility of CBDCs without committing to issue in their jurisdictions.
Rather, they highlight three key principles for a CBDC which are that it should co-exist with cash and other types of money in a flexible and innovative payment system; should support wider policy objectives and do no harm to monetary and financial stability; and its features should promote innovation and efficiency. They also identified core features for any future CBDC system which include its being resilient and secure to maintain operational integrity; convenient and available at very low or no cost to end users; underpinned by appropriate standards and a clear legal framework; and have an appropriate role for the private sector, as well as promote competition and innovation.
The coincidental release of their report could be argued to play a role in the delayed full launch of the DC/EP by now – since China is a member of the BIS. However, going by China’s edge with its rollout in phases, it is not clear that the DC/EP is following the “useful framework” that the BIS working group co-chair and the Deputy Governor of the Bank of England, Sir Jon Cunliffe, notes the 7-member report provides for how central banks to offer “money and support payment systems in an ever-evolving digital world.”
Benoît Cœuré, the working group co-chair and Head of the BIS Innovation Hub, who adds that the report “provides a springboard for further development of workable CBDCs” notes that “there will be no ‘one size fits all’ CBDC due to national priorities and circumstances.”
It’s worth noting that in August, the BIS in its new CBDC project index (CBDCPI), which puts countries with higher mobile phone usage and higher innovation capacity as having a higher chance to implement a CBDC,cites the PBoC’s DC/EP project as being at the most advanced stage of all existing CBDC projects despite not using blockchain technology.