The Bank for International Settlements (BIS) recently published a reporting in which it explored the alternative represented by the cryptocurrencies that could be emitted by central banks and the benefits they could generate for these entities.
The document was written by Benoit Coeuré, the Chairman of the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements and Jacqueline Loh, the Chair of the Markets Committee of the BIS and it talks about two possible types of digital currencies that could be issued by central banks (Central Bank Digital Currencies – CBDC): the first one would be used by the general public and the second one would be sold through wholesale in order to be used on the financial markets.
The CBDC for general use would present secure monetary instrument backed up by a central bank and it would be particularly useful for allowing the public to access the money of the central bank in a scenario where the use of cash money declines considerably. The report points out that the advantages of this type of CBDC are not sufficiently relevant for the majority of the central banks in the world at the moment, except in the countries with low demand for cash (such as Sweden, for example).
In that sense, Benoit Coeuré wrote about what a CBDC used by the general public represented for the people that do not have direct access to the money emitted by the central banks and have to resort to intermediaries. This was published in a press release published by the European Central Bank, whee Coeuré said: “Under the current system, only financial institutions have direct access to digital central bank money via accounts at their national central bank. A consumer-oriented CBDC would extend that access to everyone. Although this might not seem like a big step to digitally-savvy consumers, it could have far-reaching ramifications for the role of money, the financial system and the economy.”
When it comes to the CBDC intended for the financial markets, the report says it could improve the efficiency of the financial transactions that the central banks have with third parties. By introducing a wholesale CBDC, it would allow them to have faster transactions with lower operational costs. This could be compared with the current system of the central bank reserves used for the interbanking payment systems.
Some central banks have already studied the potential of the blockchain technology for improving the efficiency of their processes. However, according to the report, no significant benefits for the wholesale payments have been noted until now.
The report also explains that many different forms of CBDC could be designed and, despite the report analyzing only two main types, the central banks should independently analyze the different characteristics that different types of CBDC could have, such as privacy, access level, operational availability and different implications this could present for their monetary policies.
It is worth mentioning that the Bank for International Settlements is an independent institution formed by numerous central banks and that six months ago it urged the central banks around the world to investigate the possibility of emitting national cryptocurrencies.