The Importance of Legal Frameworks for Central Bank Digital Currencies
The Bank for International Settlements (BIS) is urging countries to establish legal frameworks that support the deployment of central bank digital currencies (CBDCs). BIS General Manager Agustín Carstens emphasized the need to address outdated legal frameworks that could hinder the development of CBDCs. He stated that central banks cannot achieve the desired transformation alone and called for more advanced legal frameworks to be put in place.
BIS Highlights Jurisdictional Legal Framework Challenges
Carstens referred to a 2021 IMF paper which revealed that 80% of central banks face obstacles in issuing digital currencies due to unclear or outdated legal frameworks. In contrast, a BIS survey showed that 93% of central banks are actively involved in CBDC development. This suggests that jurisdictional legal frameworks are lagging behind advancements made by central banks. Carstens emphasized that the legitimacy of a CBDC relies on the central bank’s legal authority to issue it.
Key Elements for CBDC Legislation
Carstens outlined core elements that should be included in CBDC legislation. He stressed the importance of striking a balance between user protection and maintaining the integrity of the financial system. Additionally, any legal framework should ensure that CBDCs coexist with cash and commercial bank money, offering users a choice of payment options. Carstens highlighted the need for oversight to monitor suspicious transactions related to money laundering.
The Decline of Cash and Demand for Digital Money
Carstens acknowledged the decline in cash usage and stated that users are increasingly demanding new forms of money. He noted that technological innovations have raised expectations and people now want their money to be digital and programmable. While cryptocurrencies and stablecoins have gained popularity, Carstens dismissed them as not being true forms of money due to their lack of backing by central banks and regulatory supervision.
Hot Take: Legal Frameworks are Crucial for CBDC Success
The Bank for International Settlements is calling for the establishment of advanced legal frameworks to support the deployment of central bank digital currencies. Outdated or unclear legal frameworks in different jurisdictions pose a challenge to the development of CBDCs. The legitimacy and functionality of a CBDC depend on a strong legal foundation. Additionally, any legal framework should prioritize user protection, coexistence with cash, and oversight for monitoring suspicious transactions. As cash usage declines and demand for digital money grows, it is crucial to have robust legal frameworks in place to ensure the success of CBDC initiatives.
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