New money: Central banks lay out operating manual for
digital cash
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[October 01, 2021] By
Marc Jones and Tom Wilson
LONDON (Reuters) - A group of central banks
sketched out a potential operating manual for digital cash on Thursday
as they aim to strike a balance between keeping up with cryptocurrencies
and concerns that the new technology could upend commercial lenders.
Worried that the explosion of bitcoin and its ilk could weaken their
control of money, policymakers from Beijing to Washington are exploring
central bank digital currencies, known as CBDCs.
And while a widely-used digital dollar or euro may still be years away,
work by central banks is gathering pace as consumers increasingly ditch
coins and notes in favour of digital payments on debit or credit cards
and mobile phones.
The seven central banks - including those in the United States, Britain
and the ECB in the euro zone, but not China - said publicly-used
"retail" CBDC must harness both public and private players to mesh with
existing payment systems.
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The tech should be useable with existing domestic payments systems, with
strategies for adoption tailored to on-the-ground economic conditions,
said the central banks, working alongside the Bank for International
Settlements.
The existing financial system must be given time to adjust to the
introduction of CBDC, they said, flagging risks of what could amount to
slow-motion bank runs if commercial bank customers suddenly shifted
savings to the new tech.
"Regardless of the design, developing and running a CBDC system would be
a major undertaking for a central bank," they said, stressing the
involvement of private operators must be closely monitored to ensure
public trust in the tech.
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Pound and U.S. dollar
bills are seen in this illustration taken January 6, 2020.
REUTERS/Dado Ruvic/Illustration/File Photo
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How a central bank digital currency works:
https://fingfx.thomsonreuters.com/gfx/
mkt/lbvgngxympq/Pasted%20image%201633001136766.png
STABILITY RISKS
Unlike cryptocurrencies like bitcoin that are usually run by private actors,
CBDCs would be equivalent to cash, issued and backed by central banks. They
differ from the electronic money used in billions of transactions daily that is
mostly funnelled via commercial banks.
The People's Bank of China is the most advanced among major economies on CBDCs,
and is planning its biggest digital yuan trial at the 2022 Beijing Winter
Olympics.
Meanwhile, the U.S. Federal Reserve will "soon" release research examining the
costs and benefits of a CBDC, Fed Chair Jerome Powell said last week.
Commercial banks, fretting that a retail-focused CBDC could cannibalise their
deposit bases, are trying to exert influence on their design.
The central banks sought to downplay the threat of retail-focused CBDC to
lenders' business models.
"Our analysis suggests the impacts on bank disintermediation and lending could
be manageable for the banking sector," they said, with any impact likely limited
in "plausible" levels of adoption.
(Reporting by Tom Wilson and Marc Jones; Editing by Angus MacSwan)
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