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The Bank for International Settlements takes a look at digital currency

decrypt.co 25 August 2020 15:50, UTC
Reading time: ~2 m

The Bank for International Settlements, that serves as a bank for central banks, has issued a report on central bank digital currencies (CBDCs) today. It claims they are growing in digitised economies, but the reasons for their growth differs from country to country. 

The report’s key findings are that most CBDCs originate in innovative countries, and all of these initiatives seek to offer a digital complement to cash rather than a direct replacement to it. In addition, proofs-of-concept are more often than not based on distributed ledger technology, further indicating the modernization of CBDCs. 

The report also found that most central banks are considering “Hybrid” setups, where CBDCs make a direct claim on a central bank, but customer-facing activity is dealt with in the private sector. 

A CBDC is an electronic form of central bank money. They act as a bridge between physical central bank-issued banknotes, and digital money, and promise a rejuvenated approach to payments and financial transactions. Governments are interested in them for many reasons, including the chance to improve the availability of central bank money, and to avoid the risks of new forms of private money creation. 

In Sweden, where the economy is witnessing the sharpest decline in cash worldwide, the central bank Sveriges Riksbank is developing a proof-of-concept that presents CBDCs as a compliment to cash, rather than as a replacement. 

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According to the report, the Swedish approach relies on established intermediaries to conduct KYC and due diligence measures on CBDC users. The central bank itself will receive information relating to account balances and payments, not on the CBDC users themselves.

The spread of blockchain technology hasn’t just benefited the crypto industry, it’s now coming to the world’s central banks too.

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