The concept of central bank digital currency (CBDC) has progressed quite well and is becoming inevitable. It is a new form of fiat currencies issued by central banks in digital form using centralized or permissioned distributed ledgers.
Many countries are researching or are already closer to launching a national digital currency. But a joint paper coordinated and published by the Bank for International Settlements (BIS) on Friday revealed that central banks are getting involved in the CBDC game because they are cryptophobic.
As an international organization, the BIS provides support to national central banks. Participating banks in the report are the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan, the Bank of England, the Swiss National Bank, and Sweden’s central bank, Sveriges Riksbank.
The paper highlighted the key criteria for launching and publicly issuing a central bank digital currency. The banks assessed the feasibility of CBDCs and how they would help central banks to deliver their public policy objectives.
But their major concern is losing control of the payment system, which could be jeopardized by the mass adoption of cryptocurrencies such as Bitcoin and private solutions like Facebook’s proposed Libra.
Central banks want digital currencies that are cheap or free to use and do not harm monetary and financial stability. According to the report, they also want digital currencies that can co-exist with other legal tenders, especially cash, and not one that will make cash obsolete.
The BIS believes that a CBDC designed to deliver “these features can promote more resilient, efficient, inclusive, and innovative payments.”
However, despite not wanting to lose control of the payment system, the paper noted that there should “an appropriate role for the private sector, as well as promoting competition and innovation.”
Countries like China and South Korea are already edging closer to launching their digital currencies.
CryptoPotato reported last month that the People’s Bank of China was cited saying the country should be the first to issue and circulate national digital currency. Several other reports rumored that the central bank has even started testing the digital yuan on small retail transactions.
Earlier this week, the Bank of Korea announced that it would launch a trial project to issue and circulate its digital currency across the country by 2021.
But Japan is not interested in launching one soon. According to a Friday report, the government’s top spokesman revealed that the country currently has no “specific plans” to issue central bank digital currency. However, the country admitted that it must increase and deepen its research on CBDCs as the world continues to digitize.