Bank for International Settlements Exec Shows New Fondness for CBDCs

General manager at the Bank for International Settlements (BIS) Agustin Carstens seems to have changed his negative stance towards central bank digital currencies (CBDCs), now stating that such currencies could open up new possibilities.

In his speech entitled “The future of money and the payment system: what role for central banks?” published on Dec. 5, Carstens dug into central banks’ approach to emerging technologies in regards to building more efficient and inclusive financial systems.

Wholesale and retail CBDCs

Carstens said that the introduction of retail CBDCs — which are available to the general public, including businesses and consumers — could bring serious changes to the financial sector by opening up new possibilities when it comes to the 24/7 availability of payments, different degrees of anonymity, and peer-to-peer transfers.

He continued noting that wholesale CBDCs — where the network participants are financial institutions — could be made compatible with the provision of central bank settlement liquidity. Wholesale CBDCs would not raise difficult financial footprint issues as they would be largely restricted to institutions that already use central bank deposits, according to Carstens.

Unlike wholesale CBDCs, retail versions would raise a range of concerns such as the designation of entities  responsible for the enforcement of know-your-customer and anti-money laundering regulations, Carstens outlined.

CBDCs’ negative impact on the financial system

In late March, Carstens was not so positive about CBDCs, when he advised against the issuance of such currencies. Carstens argued then that a CBDC could facilitate a bank run, enabling people to move their funds from commercial banks to central bank accounts faster, thus destabilizing the system.

At the time, he also noted that there are enormous operational consequences for the central bank in the implementation of monetary policy and the traditional market’s stability.Carstens stated: “Central banks do not put a brake on innovations just for the sake of it. But neither should they speed ahead disregarding all traffic conditions.”

Meanwhile, a number of countries are exploring the issue of the development of a digitized national currency, including China, France and Ghana, among others.

France to Test Its Central Bank Digital Currency in Q1 2020: Official

The central bank of France plans to pilot a central bank digital currency (CBDC) for financial institutions in 2020. François Villeroy de Galhau, the governor of the Bank of France, announced that the bank will start testing the digital euro project by the end of the first quarter 2020, French financial publication Les Echos reports Dec. 4.

The Bank of France confirmed the news on Twitter, noting that the announcement was made at a conference co-hosted by two major French financial regulators, the French Prudential Supervision and Resolution Authority and the Autorité des marchés financiers.

Digital euro pilot won’t involve retail customers

According to the report, the digital euro pilot will only target private financial sector players and won’t involve retail payments made by individuals. Villeroy reportedly noted that a digital currency for retail customers would “be subject to special vigilance.”

As reported by Les Echos, the initiative intends to strengthen the efficiency of the French financial system, while ensuring trust in the currency.

Preventing Libra’s impact

Moreover, the project aims to assert France’s sovereignty over private digital currency initiatives like Facebook’s stablecoin Libra, Villeroy reportedly said.

Villeroy’s stance falls in line with previous statements by French finance minister Bruno Le Maire, who argued that regulators cannot allow the launch of Libra on European soil due to monetary sovereignty concerns.

According to some reports, France led the anti-Libra effort alongside Germany, Italy, Spain and the Netherlands.

Villeroy calls on France to become the first country in the world to issue a CBDC

According to a tweet by the Bank of France, its governor emphasized that France should become the first country in the world to issue a CBDC and provide an exemplary model to other jurisdictions. He stated:

“I see the interest in rapidly advancing the issuance of at least one central bank digital currency in order to be the leading issuer globally and get the benefits associated with providing an exemplary central bank digital currency.”

France has emerged as a major adopter of blockchain tech and Bitcoin

Meanwhile, France has appeared to be at the forefront of adopting crypto and blockchain technology as its government has initiated and encouraged a number of industry-related projects.

In late November 2019, the first deputy governor of the Bank of France called for a blockchain-based settlements and payments systems in Europe. As reported by Cointelegraph on Nov. 20, the French Armies and Gendarmerie’s Information and Public Relations Center was validating judicial expenses incurred during investigations on the Tezos (XTZ) blockchain at the time.

Alongside developments in blockchain, France has also emerged as a major adopter of biggest cryptocurrency, Bitcoin (BTC). In mid-October, French crypto startup Keplerk relaunched its service to accept Bitcoin payments in over 5,200 tobacco shops in France. Previously, Cointelegraph reported that at least 30 French retailers plan to launch Bitcoin payments support at over 25,000 sales points by early 2020.

No Demand for a State Digital Currency in Japan: Central Bank Governor

Bank of Japan (BOJ) Governor Haruhiko Kuroda said that there is no public demand for a central bank digital currency (CBDC) in the country.

During his speech at the symposium for the 35th anniversary of the Center for Financial Industry Information Systems on Dec. 4, Kuroda addressed the challenges posed by private global stablecoins and CBDCs. He concluded that at present there is no reason to issue a CBDC in Japan:

“In Japan, the amount of cash outstanding is still increasing, and it does not seem that there is a demand for CBDC from the public at present. Nevertheless, the Bank of Japan has been conducting technical and legal research on this matter in order to stand ready when the need for CBDC 13 may arise in the future. The Bank also needs to study the impact of CBDCs on financial intermediation.”

BOJ promotes private digital currencies

While the central bank governor does not currently see a reason to issue its own digital currency, he admits that “there is a wide variety of private digital money denominated in Japanese yen.” The bank encourages the use of such private digital currencies and their improvement, aiming to make their features closer to what is expected from a CBDC.

One strategy that the bank is adopting to promote such systems is increasing the number of cashless payment users and ensuring interoperability among multiple payment service providers. In October, the institution has introduced a point reward program for customers using cashless payments to improve the productivity of relevant businesses.

No stablecoins until risks are addressed

Still, when it comes to global stablecoins such as Facebook’s Libra, Kuroda said the bank would take a more cautious approach. He said:

“Global stablecoins (GSCs), such as Libra, may offer convenient payment services to many users, if legal certainty and technical stability are ensured. However, users cannot continuously appreciate the benefits of GSCs unless various challenges and risks related to money-laundering, cyber-security, data protection, and consumer and investor protection are properly addressed.”

Kuroda also said that no GSC should begin its operations until legal, regulatory and oversight challenges and risks are addressed. He noted that it is essential for authorities worldwide to cooperate and maintain financial stability with free capital mobility in a world with stablecoins.

Meanwhile, countries worldwide are increasingly researching public and private digital currencies and stablecoins. As Cointelegraph reported yesterday, blockchain startup LifeLabs announced that it is developing a dollar-backed stablecoin dubbed BVI~LIFE in partnership with the British Virgin Islands.

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