The Bank of International Settlements (BIS) has published a new report that discusses the major reasons behind central banks’ race to create central bank digital currencies.
According to the Bank of International Settlements, central banks fear Bitcoin. If banks do not take the necessary steps, Bitcoin may take the mainstream position as a digital currency which can undermine fiat currencies. Private cryptocurrencies, such as Facebook’s Libra, can also threaten the supremacy of central banks over the global financial system.
Central bank digital currency is not a pure cryptocurrency but it is a digital version of fiat currency. Instead of replacing fiat, CBDC will complement cash. BIS’s paper also explains the basic criteria for the development and issuing of a state digital currency. The banks have checked the application of a CBDC in providing better solutions to real-life issues such as the Coronavirus pandemic. However, central banks have a major concern that they would lose control of the global financial network.
BIS is an international governing financial institution that works with national banks such as the European Central Bank, the Federal Reserve, the Bank of England, the Bank of Canada, Sweden’s central bank, the Bank of Japan, the Swiss National Bank, and Sveriges Riksbank.
Bitcoin is a Threat for Central Banks
Per the report, the banks want to develop a digital currency that is easy to use and does not pose a threat to financial stability. In reality, they want to use the digital currency side by side with cash. The Bank of International Settlements says a central bank digital currency must be based on the features that “promote more resilient, efficient, inclusive, and innovative payments.”
The majority of the countries have launched extensive programs to research CBDC in detail but some are even close to the launching of central bank digital currencies such as South Korea and China. Recently, the People’s Bank of China said it must be the first to launch a digital currency. South Korea, on the other hands, announced the launching of a pilot program in the distribution and circulation of digital currency by 2021.