Issuance of Central Bank Digital Currencies (CBDC) offers safe, accessible means of payment
s guardians of the safety and integrity of the payment system, central banks must keep evolving to meet the challenge of rapidly accelerating digital innovation, the bank for International Settlements (BIS) has said.
The BIS stated this in its annual economic report released at the weekend.
“As innovations increasingly emerge from outside the traditional two-tier structure provided by central banks and commercial banks, it is essential that policymakers meet the challenges of these new innovations to maintain the integrity of the payment system,” said Hyun Song Shin, Economic Adviser and Head of Research at the BIS.
“While the private sector is well placed to draw on ingenuity and creativity to serve customers better, this is best done on solid central bank foundations,” Shin said.
The report noted that central banks played a pivotal role in safeguarding the payment system by underpinning trust in money, thus supplying the ultimate safe retail (consumer) and wholesale (financial institution) settlement medium.
In addition, it stated that central banks’ operation of public infrastructures and promotion of interoperability and competition are vital to accessible, low-cost, high-quality payment services.
However, according to the report, central banks also need to foster innovation to help tackle systemic shortcomings and ensure that households and businesses have access to a diverse set of safe and efficient payment methods.
It noted that one option at the frontier of policy opportunities is the issuance of Central Bank Digital Currencies (CBDC), which could offer a new, safe, trusted and widely accessible means of payment.
“Central banks around the world are stepping up their efforts to study CBDCs and, whether wholesale or retail, the goal is to create safe and reliable settlement instruments for transacting in the digital economy,” said Benoît Cœuré, Head of the BIS Innovation Hub. “In tandem, international policy coordination can ensure that all advances in payment systems facilitate greater efficiency, cross-border integration, safety, financial inclusion and innovation.”
In addition to analysing the pandemic’s effect on retail payments, with a focus on unequal access among the poor and unbanked, the report highlights the surge in contactless payments to more than 33 per cwnt of card-present transactions from just over 27 per cent in September, as well as the rapid growth in e-commerce, the slide in cross-border transactions and a forecast 20 per cwnt drop in migrant remittances.