Digital currencies could be a valuable instrument in the monetary policy toolkit of central banks, but making them accessible to the general public could have wide-ranging implications for financial stability, according to a new report by two committees at the Bank for International Settlements.
The report focuses on two main archetypes of central bank digital currencies, or CBDCs — wholesale CBDCs, which would limit access to a predefined group of users such as financial market professionals; and general-purpose CBDCs, which would be widely accessible, said Benoît Cœuré, Chairman of the BIS Committee on Payments and Market Infrastructures, during a news conference March 12.
There is less concern about wholesale CBDCs than about general-purpose, or retail, CBDCs, according to Cœuré. "When it comes to wholesale CBDC, that is central bank money which would be used in financial market infrastructures or payment systems bank-to-bank. There is less concern in the sense that it is accepted throughout the central banking community, this is the future towards which we are heading," he told journalists.
"In jurisdictions where cash is rapidly disappearing, there may be stronger reasons to consider the issuance of CBDC to the general public as an alternative safe, robust payment instrument," added Jacqueline Loh, chair of the BIS Markets Committee.
"On the other hand ... there is a potential for financial stability risks in periods of stress due to a flight towards CBDC. There could be a higher instability of commercial bank deposit funding and potential implications for banks' business models, as the report highlights ... Therefore, any steps towards the possible launch of a CBDC should be subject to careful and thorough consideration," Loh stressed.
While CBDCs may enrich the monetary policy toolkit of central banks, there are other "conventional tools [that] could do the same without introducing new risks and challenges," she added.
In the area of payments, central banks also see more advantages to wholesale CBDCs than retail CBDCs. "The advantages of general-purpose CBDCs for payments are quite limited because we believe that fast payments, even instant payments, and efficient private payment solutions are already in place or being developed that can deliver most of the advantages that are expected from digital currencies," Cœuré said.
However, wholesale CBDCs could improve bank-to-bank operations and "enhance settlement efficiency for transactions involving securities and derivatives," according to the report prepared by the Committee on Payments and Market Infrastructures and the Markets Committee at the BIS.
Issuance of any type of CBDC will not alter the basic mechanics of monetary policy and is also not likely to change central bank mandates, according to Loh and Cœuré.
"Our mandates are given by the people in our countries and they have to [serve] the development of the financial system. So it may [affect] the way we deliver on our mandates but I don't see a reason why the mandate itself would have to change," Cœuré noted.
He said the report sets the stage for an upcoming discussion on cryptocurrency regulation to be held at the Finance Ministers and Central Bank Governors meeting March 19 and March 20 in Buenos Aires, which is part of a series of G-20 gatherings in Argentina this year.
