Central Bank Digital Currency (CBDC) “will sit at the core of the future financial system,” says Bank for International Settlements (BIS) general manager Agustin Carstens.
The so-called bank for central banks is confident that CBDC will be central to the financial system of the future.
Speaking today at the BIS conference, “Securing the future monetary system: cyber security for central bank digital currencies,” Carstens said:
“The financial system is on the cusp of significant change […] Central banks know that they have a responsibility not only to keep pace with the digital age, but to lead innovation to ensure that it serves the public good.”
“CBDCs are central to this effort. Whether in wholesale form – as a type of digital central bank reserve – or retail form – as a digital banknote – it is increasingly clear, at least to me, that these new forms of money will sit at the core of the future financial system”
Agustin Carstens, BIS, November 2023
The BIS general manager also stressed the importance of cybersecurity in a digital future where generative AI and quantum computing may present significant challenges.
“Technological innovation also opens new possibilities for criminal activities by unscrupulous actors […] High-profile security breaches have been one factor – admittedly, among many others – that has undermined trust in cryptocurrencies as useful financial instruments,” said Carstens.
“The stakes for a CBDC are much higher, and the steps we take to address these risks must accordingly be much, much greater.”
On the issue of privacy, the banker said that “maintaining an appropriate level of privacy […] will be crucial to ensuring public acceptance of retail CBDCs.”
All bankers agree that CBDC cannot be as private as cash and that CBDC transactions would not be entirely anonymous.
This is because users cannot transact with CBDC without a digital identity.
According to the BIS Annual Economic Report 2021:
“Identification at some level is hence central in the design of CBDCs. This calls for a CBDC that is account-based and ultimately tied to a digital identity”
Bank for International Settlements, Annual Economic Report, 2021
“The most promising way of providing central bank money in the digital age is an account-based CBDC built on digital ID with official sector involvement”
Bank for International Settlements, Annual Economic Report, 2021
While Carstens is confident that CBDC will be central to the future financial system, last September he lamented the fact that “close to 80% of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear.”
Despite the legal challenges, the BIS chief said that people want to have a programmable CBDC, stating:
“Users are increasingly demanding new forms of money […] People want their money to be digital and programmable. They want to be able to transfer it across borders quickly, cheaply and safely”
Agustin Carstens, BIS, September 2023
Programmability means banks and governments can program CBDC to restrict undesirable purchases, set expiry dates, and determine where transactions can be made.
Speaking at the World Economic Forum (WEF) Annual Meeting of the New Champions, aka “Summer Davos,” in June, Cornell University professor Eswar Prasad explained:
“If you think about the benefits of digital money, there are huge potential gains,” said Prasad, adding, “It’s not just about digital forms of digital currency; you can have programmability — units of central bank currency with expiry dates.
“You could have […] a potentially better — or some people might say a darker world — where the government decides that units of central bank money can be used to purchase some things, but not other things that it deems less desirable like say ammunition, or drugs, or pornography, or something of the sort, and that is very powerful in terms of the use of a CBDC, and I think also extremely dangerous to central banks.”
The BIS “Securing the future monetary system: cyber security for central bank digital currencies” conference runs from November 8-9 in Basel, Switzerland.
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