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Author: Anatol Antonovici
Senior Reporter
Anatol Antonovici

Central Banks in a Rush to Issue Own Digital Currencies

Some of the most powerful central banks are creating a think tank to assess the potential benefits of issuing their own digital currencies. The move comes amid the rapid expansion of the cryptocurrency industry, which puts pressure on traditional finance. The group will include the Bank of England (BoE), the European Central Bank (ECB), the Bank of Japan (BoJ), the Bank of Canada (BoC), and other central banks.

Fiat Currencies Will Likely Have Digital Equivalents Soon

The group will be led by Benoit Coeure, a former executive at the ECB. It will be assisted by the Bank of International Settlements (BIS). Other central banks that take part in the project include those of Sweden and Switzerland.

The banks released statements on the formation of the think tank, saying:

The group will assess (digital currency) use cases, economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.

Interestingly, the US Federal Reserve is not part of the group, but Chairman Jerome Powell said last year that the bank would monitor the digital currency debate. In December, Patrick Harker, president of the Philadelphia Federal Reserve bank, noted that it was “inevitable” that central banks would start issuing digital currency.

Facebook’s Libra Fueled The Rush

A former BoJ executive admitted that central banks were concerned by Facebook’s plans to issue a stablecoin called Libra, which is set to be governed by 100 entities under the management of Calibra.

Hiromi Yamaoka, who led BoJ’s unit overseeing payment and settlement systems, stated that Libra discussion led to a global competition among central banks. Note that the People’s Bank of China and the Bank of Russia had previously voiced similar intentions. Yamaoka explained:

The latest decision (by the six central banks) is not just about sharing information. It’s also an effort to keep something like Libra in check. Something like Libra would make transactions costs much cheaper. Major central banks need to appeal that they, too, are making efforts to make settlement more efficient with better use of digital technology.

Yamaoka himself was in charge of dealing with research and negotiations on central bank digital currencies (CBDCs). Currently, he maintains close contacts with the bank.

More Central Banks to Issue Own Digital Currencies, BIS Says

On Thursday, BIS said that an increasing number of central banks outside of the think tank would probably issue their own digital currencies by 2025. According to a BIS survey, 20% of 66 central banks intend to adopt the new trend in the next three years. In total, 80% of the banks said they were seriously considering CBCDs, up from 70% last year.

For those unfamiliar, CBDCs are nothing else than traditional money, though they come in digital form on a blockchain. They are issued and governed by a central bank, unlike cryptocurrencies, which are decentralised.

Nevertheless, despite the fact that there are many central banks talking about CBDCs, only 10% of them have trialled or started to create legal frameworks for digital currencies. Interestingly, of these active central banks come from emerging markets.

The BIS said:

There is no evidence of a widespread or general move to expand this research into experimentation and pilot arrangements.

On Wednesday, central banks of Hong Kong and Thailand said that they had made concrete steps towards using CBDCs for cross-border payments.

Meet The Author
Anatol Antonovici
Anatol Antonovici
Senior Reporter

Anatol has been writing for our news site for a year and is the newest member of our team. While he’s new to us, he’s certainly not new to trading with over 10 years’ experience being a professional financial journalist and working in the markets.

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