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From Banking and Finance Law Daily, January 8, 2019

BIS issues report on central bank digital currency

By Nicole D. Prysby, J.D.

The Bank for International Settlements has released a working paper discussing central banks’ potential issuance of digital currency. The authors surveyed central banks and concluded that although a majority are considering issuing a digital currency, they are proceeding cautiously and few plan to actual issue a digital currency in the short or medium term in its paper entitled "Proceeding with caution—a survey on central bank digital currency."

The survey responses included central banks covering almost 80 percent of the world population and provided information on the central banks’ current work on central bank digital currencies (CBDCs), what motivates that work, and how likely they are to issue a CBDC. Although 70 percent of survey respondents are engaged in CBDC work, only a few have plans to issue a CBDC within the next decade. The most important motivations for potentially issuing a CBDC are payment safety and domestic efficiency. However, most central banks are not convinced that the benefits of issuing a CBDC outweigh the costs. In addition, approximately one-third of central banks do not have legal authority to issue a CBDC and 40 percent are unsure as to whether they have such authority.

The report discusses three types of CBDCs: (1) a "general purpose" "account-based" CBDC (an account at the central bank for the general public); (2) a "general purpose" "token-based" CBDC (a type of "digital cash" issued by the central bank for the general public); and (3) a "wholesale" "token- or value-based" CBDC (a restricted-access digital token for wholesale settlements such as interbank payments or securities settlement).

Case studies. The authors provide two case examples for general purpose CBDC projects, the e-Krona (Sweden) and the e-Peso (Uruguay). The Sveriges Riksbank in Sweden began the e-Krona project due to the decline of cash use in Sweden. The next stage will be a pilot program for a prepaid value, non-interest bearing and traceable e-Krona. The Central Bank of Uruguay has just completed a pilot program on a general purpose CBDC, which was part of a governmental financial inclusion program. The pilot program issued 20 million e-Pesos. Transfers of e-Pesos took place instantly and peer-to-peer, via mobile phones using either text messages or the e-Peso app. The pilot was closed in April 2018 and next steps are being evaluated.

Companies: Bank for International Settlements; Central Bank of Uruguay; Sveriges Riksbank

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