Central Banks Must Adapt Approach to Acknowledge CBDC Risks
The Bank of International Settlements (BIS) has highlighted the need for central banks to adapt their approach to central bank digital currencies (CBDCs) and recognize the risks involved. According to a recent report, CBDCs should not be seen as just a more efficient form of digital money, but rather as a fundamental change in how central banks operate.
“Given the major implications of issuing a CBDC, this should not be considered to be a technological project but rather a fundamental change in the way that the central bank operates.”
The report emphasizes the importance of implementing a comprehensive risk management framework for CBDCs and managing risks throughout its lifecycle.
“The multi-faceted nature of the risks calls for an integrated risk management framework to inform the design of a CBDC model and to manage risks throughout its lifecycle.”
Maintaining Continuous Surveillance and Robust Business Continuity Plans
The BIS report suggests that continuous surveillance and adjustment of plans will be crucial for CBDCs. This involves developing robust business continuity plans to ensure reliability and continuity of services based on various scenarios and threats throughout the entire digital currency cycle.
BIC Chief Advocates for a Unified Global Set of Rules
BIS Chief Augustin Carstens has emphasized the importance of global collaboration in establishing consistent rules for CBDCs. He believes that successful implementation requires not only technological advancements but also a sophisticated legal framework.
“Money is a social construct. People trust in it today because they know others will trust in it tomorrow. The legal framework is a key underpinning for the legitimacy of money, and the trust that people place in money. Without the law, money cannot function.”
Hot Take: The Risks and Challenges of CBDCs
The introduction of central bank digital currencies (CBDCs) brings about significant risks and challenges that need to be addressed by central banks. It is crucial for central banks to recognize that CBDCs represent a fundamental shift in their operations rather than just a technological project. Implementing a comprehensive risk management framework and continuously monitoring CBDCs are essential for their success. Additionally, global collaboration is necessary to establish consistent rules and regulations for CBDCs. This requires not only technological advancements but also a robust legal framework to ensure trust and legitimacy in the digital currency system.
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