New money: central banks present operations manual for digital currency

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Banknotes in pounds and US dollars can be seen in this illustration taken on January 6, 2020. REUTERS / Dado Ruvic / Illustration / File Photo

  • Retail CBDCs must be usable with national payment systems
  • Private sector participation should be closely monitored
  • The impact on commercial loans “could be manageable”

LONDON, Sept. 30 (Reuters) – A group of central banks on Thursday drafted a potential operations manual for digital money in an attempt to strike a balance between tracking cryptocurrencies and fears the new technology might overwhelm commercial lenders.

Fearful that the explosion of bitcoin and its ilk could weaken their control over money, policymakers from Beijing to Washington are exploring the central bank’s digital currencies known as CBDCs.

And although a widely used digital dollar or euro may still take years, the work of central banks is accelerating as consumers increasingly move away from coins and banknotes in favor of digital payments on debit cards. or credit and cell phones.

All seven central banks – including those of the United States, Britain and the ECB in the eurozone, but not China – have said the “retail” CBDC for public use must exploit both public and private actors to integrate with existing payment systems.

The technology is expected to be usable with existing domestic payment systems, with adoption strategies tailored to economic conditions on the ground, said central banks, working alongside the Bank for International Settlements.

The existing financial system must be given time to adjust to the introduction of the CBDC, they said, pointing to the risks of what could look like sluggish banking if commercial bank customers suddenly transfer their money. savings towards new technology.

“Whatever the design, developing and managing a CBDC system would be a major undertaking for a central bank,” they said, stressing that the involvement of private operators must be closely monitored to ensure public confidence in the technology.

How a central bank digital currency works

STABILITY RISKS

Unlike cryptocurrencies like bitcoin which are generally managed by private players, CBDCs would be equivalent to cash, issued and backed by central banks. They differ from electronic money used in billions of daily transactions which is primarily channeled through commercial banks. Read more

The People’s Bank of China is the most advanced among the major economies on the CBDCs and is planning its largest digital yuan test at the Beijing 2022 Winter Olympics.

Meanwhile, the US Federal Reserve will publish research examining the costs and benefits of a CBDC “soon”, Fed Chairman Jerome Powell said last week. Read more

Commercial banks, fearing that a retail-oriented CBDC could cannibalize their deposit bases, are trying to influence their design. Read more

Central banks have sought to minimize the threat of retail-oriented CBDCs to lender business models.

“Our analysis suggests that the impacts on bank disintermediation and lending could be manageable for the banking sector,” they said, with any impact likely limited to “plausible” adoption levels.

Reporting by Tom Wilson and Marc Jones; Editing by Angus MacSwan

Our Standards: Thomson Reuters Trust Principles.


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