On 9 October 2020, the Bank for International Settlements (BIS) published a report, Central bank digital currencies: foundational principles and core features. The report was compiled by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS.
For the central banks contributing to the report, the common motivation for exploring a general purpose central bank digital currency (CBDC) is its use as a means of payment. Providing cash to the public is a core responsibility of central banks and a public good. All the contributing central banks commit to continue providing cash as long as there is public demand. Yet a CBDC could provide complementary central bank money to the public, supporting a more resilient and diverse domestic payment system. It might also offer opportunities not possible with cash while supporting innovation.
CBDC issuance and design are sovereign decisions to be made by each jurisdiction. The report is not about if or when to issue a CBDC. Central banks will make that decision for their jurisdictions (in consultation with governments and stakeholders). None of the central banks contributing to the report have reached a decision on whether or not to issue a CBDC. Instead, the report advances the foundational international work by outlining common principles and the key features a CBDC and supporting infrastructure would need in order to contribute to central bank public policy objectives.
The report highlights three key principles for a CBDC:
- Coexistence with cash and other types of money in a flexible and innovative payment system.
- Any introduction should support wider policy objectives and do no harm to monetary and financial stability.
- Features should promote innovation and efficiency.
The possible adverse impact of a CBDC on bank funding and financial intermediation, including the potential for destabilising runs into central bank money, has been a concern of central banks. Any decision to launch a CBDC would depend on an informed judgment that these risks can be managed, likely through some combination of safeguards incorporated in the design of a CBDC and financial system policies more generally. Understanding the potential market structure effects of CBDC, their implications for financial stability, and any potential mitigants is a further area of work for this group.
The next stage of CBDC research and development will emphasise individual and collective practical policy analysis and applied technical experimentation by central banks. The report highlights CBDC design and technology considerations, including initial thoughts on where trade-offs lie. Far more work is required to truly understand the many issues, including where and how a central bank should play a direct role in an ecosystem and what the appropriate role might be for private participation. The speed of innovation in payments and money means that these questions are ever more urgent.