Central Banks Issue Report Considering CBDCs
Recently, a group of central bankers issued a report entitled “Central Bank Digital Currencies: Foundational Principles and Core Features.” Released on October 9, 2020, the report lays out common foundational principles and core features of a central bank digital currency, or CBDC. It is a joint product of the Bank of Canada, European Central Bank, Bank of Japan, Swedish Riksbank, Swiss National Bank, Bank of England, the US Federal Reserve and the Bank for International Settlements.
The report emphasizes that none of the central banks contributing to this report have reached a decision on whether or not to issue a CBDC. Instead, the report seeks to advance common principles and the key features a CBDC and supporting infrastructure would need in order to contribute to central bank public policy objectives. These principles emphasize that: (1) a central bank should “do no harm” and thus not compromise monetary or financial stability by issuing a CBDC; (2) a CBDC would need to coexist with and complement existing forms of money; and (3) a CBDC should promote innovation and efficiency. A robust legal framework is a central feature of CBDC, and the report posits that a central bank should have clear legal authority underpinning its issuance of a CBDC. Notably, so-called synthetic CBDCs that involve intermediaries interposed between central banks and end users are not within the scope of the report.
The possible adverse impact of a CBDC on bank funding and financial intermediation, including the potential for destabilizing runs into central bank money, is also a concern of the central banks contributing to the report. According to the report, any decision to launch a CBDC would depend on an informed judgment that these kinds of risks can be managed, likely through some combination of safeguards incorporated in the design of a CBDC and financial system policies more generally.
The report stresses that understanding the potential market structure effects of CBDC, their implications for financial stability, and any potential mitigants are further areas of work for the working group. The report concludes with a work plan to consider further information-sharing and collaboration among central banks on future CBDC research.