Cryptocurrency News

BIS Claims CBDCs Are Necessary For Governments If They Want To Keep Control Of Money

The BIS’s comments come amid a worldwide decline in the use of physical cash. Cryptocurrencies are gaining popularity as investments as well as legal cash. This has prompted Big Tech companies to start working on their own digital currencies. For example, Facebook proposed in 2019 that its Libra digital money could serve as a worldwide currency. However, because of significant condemnation, it has shifted its focus to the current Diem project.

The BIS, on the other hand, is wary of these goals. They believe that without CBDC, huge tech businesses will gain greater control over digital money. This could happen mostly as a result of their utilizing their massive social media user base. The BIS’s Benoit Coeure described the loss of authority over national money as “a location where you don’t want to be, where governments don’t want to be.”

Is the cycle virtuous or vicious?

In a chapter of its current Annual Economic Report, the BIS examined CBDCs’ potential. While it praised advancements in payment systems, it cautioned that the advantages would be contingent on their structure and control. On the one hand, technology has the potential to create a “virtuous cycle” of increased access, lower costs, and improved services.

However, the paper warns that data silos, market power, and anti-competitive behaviors might create a “vicious cycle.” According to the survey, “CBDCs and open platforms are the most favorable to a virtuous circle.”

CBDC development around the world

The research claims that 56 central banks and monetary authorities are considering constructing CBDCs. The BIS is even assisting a few of them in developing standards. CBDCs, for example, are being developed for usage solely by financial intermediaries (wholesale CBDCs) or by the entire economy (retail CBDCs). Another recent BIS research claimed that digital banknotes based on “intermediated” or “hybrid” CBDC designs were particularly promising.

CBDCs could also help to improve cross-border payments and reduce currency substitution issues. Authorities must yet decide whether citizens require digital IDs to utilize CBDCs. They might alternatively go the token-based path, which is comparable to cryptocurrencies and allows for more anonymous transactions. The ID method, however, is preferred by the BIS since it prevents people from utilizing digital currencies from nations other than their own.

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