The Bank for International Settlements (BIS) says that central bank digital currencies (CBDC) are necessary to ensure that governments maintain control of money.
The BIS’s comments come amid the global decline in physical cash use. Cryptocurrencies are also gaining ground both as investments and as legal tender, which has motivated Big Tech firms to start developing their own digital currencies.
For example, in 2019 Facebook proposed that its Libra digital currency could act as a universal currency. However, widespread condemnation caused him to narrow down his intentions to the current project called Diem.
Yet it is these ambitions that the BIS fears. They believe that without CBDC digital money would be increasingly dominated by big tech companies.
This could mostly happen if they take advantage of your huge social media user base. According to Benoit Coeure of the BIS, the loss of control over sovereign money:
“That is a place where you don’t want to be, where governments don’t want to be.”
Virtuous or vicious circle
The BIS analyzed the potential of CBDCs in a chapter of its latest Annual Economic Report. While he applauded the advancement in payment systems, added that its benefits would depend on its structure and governance.
On the one hand, technology could enable a “virtuous circle” of broader access, lower costs, and better services.
However, the report points out the potential for a “vicious cycle” of data silos, market power and anti-competitive practices:
“CBDCs and open platforms are the most conducive to a virtuous cycle.”
CBDC Global Development
According to the report, 56 central banks and monetary authorities are considering at least developing CBDC. The BIS is even working with some of them to help set standards.
For example, CBDCs are being designed for use only between financial intermediaries (wholesale CBDC) or by the general economy (retail CBDC).
Another recent BIS document suggested that digital currencies, running “on ‘brokered’ or ‘hybrid’ CBDC architectures” showed particular promise.
Additionally, CBDCs could improve cross-border payments and limit currency substitution risks. However, the authorities still they must decide whether citizens need digital IDs to use CBDC.
They could also go a token-based route similar to cryptocurrencies that keep transactions more anonymous. Although the BIS prefers the identification system, as it would prevent people from using digital currencies from countries other than their own.
The post CBDCs are necessary to ensure government control of money, according to BPI was first seen on BeInCrypto.