Outdated Legal Frameworks Hindering Central Bank Digital Currencies, Says BIS Chief
The General Manager of the Bank of International Settlements (BIS), Agustín Carstens, believes that outdated legal frameworks are preventing the issuance of much-needed Central Bank Digital Currencies (CBDCs). In a recent speech in Switzerland, Carstens highlighted the potential benefits of CBDCs for the global economy and called for world leaders to update their laws to accommodate them.
Carstens emphasized that people want their money to be digital and programmable, allowing for quick, cheap, and safe cross-border transfers. While private market cryptocurrencies like Bitcoin possess these characteristics, Carstens argued that they cannot be considered true money without the backing and protection of a central bank.
According to Carstens, stablecoins also fail to meet the requirements since their stability cannot be guaranteed. He cited examples of stablecoins losing their peg to the dollar, highlighting the risks associated with such assets.
Potential Benefits of CBDCs
Carstens outlined the potential benefits of wholesale CBDCs used by the banking system, including automation and risk mitigation. Additionally, he suggested that retail CBDCs could enhance financial inclusion and facilitate faster and cheaper cross-border payments. Retail CBDCs would coexist with cash, providing a digital alternative to physical banknotes and coins.
However, Carstens acknowledged that legal barriers exist in many jurisdictions. A 2021 survey by the International Monetary Fund (IMF) revealed that nearly 80% of central banks face legal restrictions or unclear laws on issuing CBDCs.
The Need for Clear Legal Frameworks
Carstens stressed that it is unacceptable for unclear or outdated legal frameworks to hinder the deployment of CBDCs. He urged policymakers to address these issues promptly and ensure that the development of CBDCs proceeds at an accelerated pace.
Despite the challenges, Carstens highlighted that 93% of central banks are already working on CBDCs in some capacity, with many engaged in pilots or concrete experiments. However, support for CBDCs varies among political parties. While Democrats are more open-minded to their deployment, Republicans tend to oppose them, viewing CBDCs as a tool for state surveillance.
Privacy Considerations and Interoperability
In his speech, Carstens emphasized the importance of privacy as a core element in the legal frameworks surrounding CBDCs. He stated that each jurisdiction should have the autonomy to decide whether CBDC issuance is appropriate.
Carstens concluded by expressing concern about a fragmented system and legal framework where different digital currencies do not interoperate. He emphasized the need for harmonization to ensure seamless functionality across various CBDCs.
Hot Take: The Urgent Need for Updated Legal Frameworks for CBDCs
The General Manager of BIS, Agustín Carstens, has highlighted the urgent need for updated legal frameworks to facilitate the issuance of Central Bank Digital Currencies (CBDCs). Outdated laws are currently hindering the development and deployment of CBDCs worldwide. Carstens emphasized that people desire digital and programmable money that allows for fast, cheap, and secure cross-border transfers. While private market cryptocurrencies possess these qualities, they lack central bank backing and protection.
Carstens also pointed out that stablecoins cannot guarantee stability, citing examples where they lost their peg to the dollar. In contrast, he highlighted the potential benefits of wholesale and retail CBDCs, including automation, risk mitigation, financial inclusion, and faster cross-border payments.
However, Carstens acknowledged the legal barriers faced by central banks, with unclear or outdated frameworks impeding CBDC deployment. He urged policymakers to address these issues promptly and ensure a harmonized system that respects privacy and interoperability among different CBDCs.
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