Central banks lay out operating manual for crypto currencies

Worried that the explosion of crypto currencies could weaken their control of money, policymakers are exploring CBDCs

A group of central banks sketched out a potential operating manual for digital cash on Thursday as they aim to strike a balance between keeping up with crypto currencies and concerns that the new technology could upend commercial lenders.

Worried that the explosion of bitcoin and other crypto currencies could weaken their control of money, policymakers from Beijing to Washington are exploring central bank digital currencies (CBDCs).

The seven central banks, including those in the US, Britain and the European Central Bank (ECB) in the euro zone, but not China, said publicly-used retail CBDC must harness both public and private players to mesh with existing payment systems.

The tech should be useable with existing domestic payments systems, with strategies for adoption tailored to on-the-ground economic conditions, said the central banks, working alongside the Bank for International Settlements (BIS).

The existing financial system must be given time to adjust to the introduction of CBDC, they said, flagging risks of what could amount to slow-motion bank runs if commercial bank customers suddenly shifted savings to the new tech.

Regardless of the design, developing and running a CBDC system would be a major undertaking for a central bank, they said, stressing the involvement of private operators must be closely monitored to ensure public trust in the tech.

Unlike crypto currencies like bitcoin that are usually run by private actors, CBDCs would be equivalent to cash, issued and backed by central banks. They differ from the electronic money used in billions of transactions daily that is mostly funnelled via commercial banks.

The People’s Bank of China is the most advanced among major economies on CBDCs, and is planning its biggest digital yuan trial at the 2022 Beijing Winter Olympics.

Meanwhile, the U.S. Federal Reserve will “soon” release research examining the costs and benefits of a CBDC, Fed Chair Jerome Powell said last week.