Maybe BIS Membership Slowed China’s Digital Currency Launch
Several European central banks have announced their coming together with the Bank for International Settlements (BIS) to create a group to share knowledge as they assess the potential use cases for a central bank digital currency (CBDC).
The move by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank, the Swiss National Bank, and BIS piques interest on how their proposal could have delayed China’s proposed launch of a CBDC.
The group will assess CBDC use cases including its economic, functional and technical design choices, and cross-border interoperability. They will also be sharing of knowledge on emerging technologies and closely coordinate with the relevant institutions and forums.
It follows the collaborative study hinted at by the Bank of England Governor Mark Carney in a speech last year in which he criticized the global reliance on the US dollar and suggested central banks to soon need a separate reserve currency.
According to the BIS, as the bank for central banks, over 70% of central banks are looking at issuing a digital currency on a blockchain which is evident in the number of announcements that have been made by central banks around the world on their exploring the issuance of a CBDC over the past year. There have been more talks of China planning to launch its CBDC though.
In fact, as interests in CBDCs grows around the globe starting 2019 – and likely to be the key focus for 2020 – the belief still holds that China will be the first to launch its CBDC through the Digital Currency Electronic Payment (DC/EP) project. But that has not happened thus far with little information on why it hasn’t been the case.
The People’s Bank of China (PBoC) is one of the 60 BIS members comprising of central banks and monetary authorities and part of a top mission to foster “discussion and facilitating collaboration among central banks.” This understanding begs the question of whether it would be counterproductive for China to launch its digital currency while others just announced their collective study into it considering the membership’s overall aim to ensure “monetary and financial stability.”
In a whitepaper released as the World Economic Forum meets in Davos for the 50th time, Consensys cites CBDC’s advantages as including playing a central role in advancing the digital assets revolution in a regulated, lower-risk and – crucially – accessible way, and helping make financial markets more efficient and available to all global citizens.
CBDCs can give central banks more effective, future-oriented tools to implement monetary policy in more direct and innovative ways and keep pace with technological change. CBDCs could also simplify and reduce the cost of cross-border remittances while improving interbank payments networks, be a strong catalyst for financial services innovation through large-scale payments system for tokenised assets markets – “offering a risk-free, widely accessible alternative to privately-issued stablecoins, like Facebook’s Libra, which serve a similar purpose but could expose users to credit and/or liquidity risk.”
“What is important is that central banks have come to realise the extent of the transformations that are already happening in digital currencies, and that they see the importance of embracing a significant role in bringing about this change,” writes Joseph Lubin, CEO of ConsenSys and co-Founder of Ethereum.
It remains to be seen if the PBoC or any central bank will issue a CBDC soon but the executive director of Positive Money, Fran Boait, thinks they have been “asleep at the wheel over the future of money system” thus leaving it to be determined by a small number of banks, payment companies and now tech giants. He suggests they move faster on CBDCs to ensure people’s trust and avoid “unaccountable private interests” taking over the monetary system.