The Bank for International Settlements (BIS) announced its full support for developing central bank digital currencies (CBDCs) in pursuing financial and monetary stability through international cooperation with the mandate and support by central banks.
CBDCs are crucial in modernising finance
The BIS acknowledged that CBDCs must modernise finance and keep ‘Big Tech’ in check not to control money.
Benoit Coeure, a member of the BIS, warned:
“Without CBDCs, digital money would become increasingly dominated by big tech firms, as they would leverage enormous social media user bases.”
CBDCs are digital assets pegged to a real-world asset and backed by the central banks, meaning that they represent a claim against the bank exactly how banknotes work. Furthermore, they are blockchain-enabled, representing a new technology for issuing central bank money at the wholesale and retail level.
According to the announcement:
“As part of its upcoming annual report it estimated that at least 56 central banks and monetary authorities, representing around a fifth of the world’s population, are now looking at digital currencies as commerce shifts online.”
The issuance of CBDCs seems to be a race against time; many nations believe owning a CBDC is instrumental in having control of the global markets.
The Bahamas- the first nation to launch a CBDC
The Bahamas launched the Sand Dollar in October last year, making it the first country in the world to release a CBDC beyond the testing phase officially.
As more nations reveal their interest in CBDCs, the BIS noted that authorities would have to decide whether citizens require digital IDs to use them or choose the token-based route, making transactions more anonymous.
In November 2020, the International Monetary Fund (IMF) advised central banks not to overlook some essential legal frameworks needed for a CBDC to work.
Once rolled out, CBDCs are expected to drive the financial inclusion of nearly 1.7 billion people left out of the banking system.
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