Major central banks set out CBDC policy debates

The Bank for International Settlements and seven leading central banks outlined key policy debates around issuing central bank digital currency (CBDC) in a paper published on May 25. 

While they are at different stages of CBDC development, the central banks agree on a need to ensure ongoing retail access to central bank money “at a time of profound, ongoing changes across finance, technology and society”. 

The central banks – of Canada, the eurozone, Japan, Sweden, Switzerland, the UK and US – said they “recognise that no meaningful retail CBDC could be issued without the support of respective governments”.

CBDCs, if issued, “must be interoperable with other forms of money and existing payment systems”, the group said. 

It also acknowledged there may be an “optimum level” of CBDC adoption needed to meet public policy objectives. Central banks are likely to differ, however, in the extent that they might wish to actively shape demand for CBDC, as part of their larger policy toolkit. 

The central banks stressed the importance of the private sector in CBDC development and said outstanding legal issues will be a matter of national law. 

In terms of technology, they said the need to proxy trust in blockchain-based systems creates inefficiencies, “resulting in challenges with performance and scalability”. However, there may be uses for blockchain technology to extend CBDC functionality. 

A new generation of “post-quantum” cryptography, resistant to attacks by quantum computers, may need to be considered in CBDC designs.

The group previously published a report in October 2020 setting out the common foundational principles and core features of CBDC, and an executive summary and three detailed reports on system design and interoperability, user needs and adoption, and financial stability implications in September 2021.