Several countries have been heralding this new move towards currency digitization. As the days go by, more nations are committing to the prospect of issuing digital versions of their legal tender. However, this week saw the bank of central banks, the Bank of International Settlements (BIS), reportedly commit to a Central Bank Digital Currency (CBDC).
A Wholesale CBDC in the Works
Earlier this week, Benoît Cœuré, the Head of the BIS’s Innovation Hub, confirmed that the agency would move ahead with a CBDC proof of concept. In a speech at the Shanghai Bund Summit, the former board member at the European Central Bank (ECB) confirmed that the BIS would work with the Central Bank of Switzerland on the initiative.
Cœuré confirmed that the BIS is working on a wholesale CBDC. A possible timeline for the proof of concept has been set for the end of the year.
Wholesale CBDCs are digital assets held by banks, which traditionally help improve transaction security and reduce costs. However, most of them aren’t accessible to members of the public and are mostly restricted to use by large financial institutions and possibly governments. While the BIS doesn’t particularly need to develop an asset with grassroots accessibility, it would be interesting to see how its asset fits into the global economic landscape. For now, however, there are few details on how it would operate.
The CBDC Fever Isn’t Stopping
The BIS is the second international agency to confirm interest in a CBDC. Early last month, Christine Lagarde, the President of the ECB, confirmed that the agency was also looking towards a possible CBDC. Speaking at an online conference hosted by the Deutsche Bundesbank, the policymaker explained that research had gone into the project, and the Bank will be revealing its findings soon.
On the rationale for the CBDC, Lagarde pointed out that a Europe-wide CBDC will bring the entire European economic bloc to the forefront of financial innovation. She admitted that Europe had lagged in this regard over the past few years, with a lack of payment integration causing it to fall behind countries like China.
To makeup, the ECB is working on a possible retail CBDC that will bridge the gap and ensure fast-tracked innovations. The policymaker added that the ECB had seen signs that Europe is ready for a CBDC, especially as e-commerce sales had surged by about 20 percent between February and June. Coupled with a push for the European Union to accept digital currency and stablecoin regulation, the ECB is keen on charting a new course for the entire continent.
For now, however, individual countries are the stars of this movement. China and Japan lead the way, with both nations ready for tests on the CBDCs to start next year. Tests in the former already started, but they appear to be taking their time to ensure that they get things right.