Central banks must carefully weigh the implications for financial stability and monetary policy of issuing digital currencies available to the general public, according to a report from the Committee on Payments and Market Infrastructures (CPMI) and the Markets Committee, although the underlying technologies might hold more promise for wholesale payments, clearing and settlements.
The joint report, released ahead of the meeting of the Group of 20 (G20) central bank governors and finance ministers, looks at two types of central bank digital currency: a wholesale currency limited to select financial institutions, and a general purpose currency accessible to the public. The report analyses the implications of both types in three core central banking areas: payments, monetary policy implementation and financial stability.
Benoît Coeuré, Chair of the CPMI, said central bank digital currencies showed promise in wholesale payments: “Central bank digital currencies could help make settling trades of securities and foreign exchange more efficient in the future. But more work and experimentation would be needed to explore these benefits.”
“General purpose central bank digital currencies could revolutionise the way money is provided and the role of central banks in the financial system, but these are uncharted waters, with potential risks. This report is a starting point for further discussion and research and will help countries make choices given their own circumstances,” Coeuré said.
Jacqueline Loh, Chair of the Markets Committee, said that while central bank digital currencies could give central banks a new monetary policy tool that could enhance the transmission of policy rates to the real economy, existing tools can already achieve similar goals.
“Central banks should continue to monitor developments in digital innovations, as well as analyse the possible implications of central bank digital currencies for areas that are core to the central banking mandate. For example, a general purpose central bank digital currency could impact bank deposits, a major source of funding for commercial banks, with implications for financial stability,” Loh said.
Mark Carney, Chair of the BIS Global Economy Meeting and Chair of the Financial Stability Board, said the report is an important contribution to the G20 discussion on digital currencies, given central banks’ mandate to safeguard financial stability for the public.
“Technological developments have raised questions about the feasibility and desirability of combining distributed ledger technology with the trust inherent in fiat currencies to create a central bank digital currency available to all. As set out in this report, the policy issues that this would raise, for central banks and society more generally, need careful consideration. A more immediate priority is how to use these new technologies to meet the current demand for fully reliable, real-time payments,” Carney said.