Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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BIS Research: CBDCs beyond borders: results from a survey of central banks
BIS | Raphael Auer, Codruta Boar, Giulio Cornelli, Jon Frost, Henry Holden and Andreas Wehrli | Jun 24, 2021
CBDCs offer an opportunity to rethink some key features of cross-border payments. Central banks could ease current frictions by factoring an international dimension into their CBDC designs from the outset.
For front-end retail uses, CBDCs could allow for use by non-residents in a jurisdiction, or abroad, if central banks permit this option and the transacting parties agree on using the CBDC as means of payment. Some CBDC designs could allow for transfers that are as frictionless as digital messages. Account-based CBDCs that link balances to identification could bring efficiency while mitigating any key risks that digital cash may otherwise entail (Carstens (2021a)).
See: Stablecoins: What’s old is new again – speech by Christina Segal-Knowles
An alternative option is for various mCBDC arrangements, which are generally focused on wholesale uses. At least three models exist in principle to facilitate cross- border payments in this way, involving successively greater integration and policy coordination.
Our survey finds that central banks are actively considering these cross-border issues around CBDCs. While a slight majority of central banks have not yet come to any firm conclusion on whether non-residents would have access to a (future) domestic CBDC, slightly more than a quarter of respondents say that they would allow such access, and almost 20% would consider this at a later stage. Fewer central banks would allow for use abroad by non-residents. Central banks are aware of the risks entailed by such cross-border usage of their own CBDC, or usage in their jurisdiction of foreign CBDCs. Tax avoidance, loss of oversight and a range of concerns associated with “digital dollarisation” were mentioned prominently in the survey responses. While most central banks do not currently report restrictions on the use of foreign currencies for transactions in their jurisdiction, about a third may reconsider such restrictions if a foreign CBDC (or stablecoin or cryptocurrency) were to become widely used. Nonetheless, where a central bank is considering only retail or only wholesale CBDC, they frequently responded that aspects covering the other area are undecided.
On the wholesale front, the survey results show that central banks are considering a variety of mCBDC arrangements. Some central banks are even contemplating multiple CBDCs run on a single system. Meanwhile, some central banks are considering novel operational roles for the central bank in FX conversion. Overall, the responses show active consideration of cross-border issues and a strong interest in international peer learning.
See: Should the State or the Market Provide Digital Currency?
This brief overview has laid out a number of open issues for both policy and economic research. In particular, the discussion of both retail and wholesale use underscores the importance of early policy coordination on CBDC design, so as to promote coherence and to reduce future policy spillovers. From a research perspective, there is a clear need to better understand how CBDCs compare with other potential policy interventions, such as retail fast payment systems, and what the longer-term implications of issuance for the international monetary system may be. Beyond currency substitution, the broader macroeconomic implications of CBDCs also need to be understood, not least for monetary policy transmission and cross- border capital flows. Further research on CBDC design could help to inform efforts to reduce the risk of international spillovers. All these are relevant areas where research and policy can fruitfully enrich one another.
Download the full 22 page PDF report --> here
BIS | Jun 23, 2021
CBDCs: an opportunity for the monetary system
Key takeaways
• Central bank digital currencies (CBDCs) offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy.
• Digital money should be designed with the public interest in mind. Like the latest generation of instant retail payment systems, retail CBDCs could ensure open payment platforms and a competitive level playing field that is conducive to innovation.
See: BIS digital currency paper predicts money will be unbundled
• The ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements. The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle.
• CBDCs built on digital identification could improve cross-border payments, and limit the risks of currency substitution. Multi-CBDC arrangements could surmount the hurdles of sharing digital IDs across borders, but will require international cooperation.
Download the 31 page PDF report --> here
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