Wednesday, October 27, 2021

Naya Paisa: Central Bank prepares operating manual for digital cash

LONDON – A group of central banks on Thursday outlined a possible operating manual for digital cash, as they aim to strike a balance between cryptocurrencies and concerns that the new technology could overwhelm commercial lenders.

Concerned that the explosion of bitcoin and its ilk could undermine control of their money, policymakers from Beijing to Washington are exploring central bank digital currencies, known as CBDCs.

And while a widely used digital dollar or euro may still be years away, work by central banks is gaining momentum as consumers increasingly favor digital payments over debit or credit cards and mobile phones with coins and notes. are leaving.

Seven central banks—including the United States, Britain, and the European Central Bank (ECB) in the euro area, but not China—said that publicly-used “retail” CBDCs should be offered to both public and private players as opposed to existing ones. To mesh with must use payment system.

Central banks working with the Bank for International Settlements said the technology should be usable with existing domestic payment systems, with a strategy to adapt to ground economic conditions.

He added that the current financial system should be given time to sync up with the introduction of CBDCs, flagging the risk of a slow bank running off if customers of a commercial bank suddenly shift savings to the new technology.

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“Whether the design, development and operation of a CBDC system will be a major undertaking for the central bank,” he said, adding that private operators’ participation in the technology should be closely monitored to ensure public confidence.

How does a central bank digital currency work?

stability risk

Unlike cryptocurrencies such as bitcoin, which are typically run by private actors, a CBDC will be the equivalent of cash, issued and backed by central banks. They differ from the electronic money used in the billions of transactions per day that are funneled through most commercial banks.

China’s central bank is planning its biggest ever digital yuan trial at the 2022 Beijing Winter Olympics.

Meanwhile, the US Federal Reserve will “soon” release research examining the costs and benefits of CBDCs, Fed Chairman Jerome Powell said last week.

Commercial banks, worried that retail-focused CBDCs could destroy their deposit bases, are trying to influence their design.

Central banks sought to reduce the risk of retail-focused CBDCs to lenders’ business models.

“Our analysis suggests that the impact on bank intermediation and lending may be manageable for the banking sector,” he said, with any impact limited in “plausible” levels of adoption.

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This News Originally From – The Epoch Times

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