Six central banks have formed a working group with the Bank of International Settlements (BIS) to collaborate on digital currency research.
The group, comprised of the central banks of the United Kingdom, Japan, Canada, Sweden, Switzerland and European Union, will pool “experiences as they assess the potential cases for central bank digital currency (CBDCs) in their home jurisdictions.”
A press release, published by the Bank of England (BoE) on January 21st, states:
“The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies.”
Benoît Cœuré, the newly appointed head of BIS Innovation Hub, will be co-chair alongside Jon Cunliffe, the Bank of England’s deputy director.
The new working group will also work closely with other global forums, such as the Committee on Payments and Market Infrastructures (CPMI) and the Financial Stability Board (FSB). The former is an international entity that looks to standardize the safety and efficiency of payments and settlements to support financial stability. The prior is a recommendations body that assesses and monitors vulnerabilities that can affect the global financial system.
According to The Guardian, the group will “examine the possible pitfalls of relying on electronic money.” The move is being linked to the emergence of private digital currency projects, such as Facebook’s Libra.
In 2018, Christine Lagarde, then head of the International Monetary Fund, called on central banks to begin seriously exploring the potential of digital currencies. However, interest in CBDCs only recently peaked after Facebook’s announcement last summer. Since then, we’ve been covering how central banks have accelerated research and development into digital currencies.
The development of central digital currencies, a trend for 2020
Sweden’s central bank Riksbank announced, last month, that Accenture won the deal to become the technology partner for the e-krona pilot project. The Blockchain Land covered at the end of 2018 how Sweden has been suffering a steady decline in the use of cash in transactions. The e-krona project is a CBDC test, and the bank has made clear that no decision has been made about a launch.
The European Central Bank (ECB) has also been assessing the benefits of issuing a digital currency since last year. On a document released by the European Union, they commended the exploration of digital currencies by central banks, stating:
“The ECB and other EU central banks could usefully explore the opportunities as well as challenges of issuing central bank digital currencies, including by considering concrete steps to this effect.”
The ECB has also been working with the Bank of Japan since 2016 to release a collaborative research report on how DLT can be integrated into the global financial infrastructure. Their results, published in 2017, concluded that DLT wasn’t ready to replace settlement systems. Current efforts may be an indication that times are changing.
The BoE has also dipped their toes in cryptocurrencies initiatives a few times. Advances in blockchain technology, as well as an increasingly proactive posture towards digital currency, may mean that this may be the right time to work together.