And now, for digital currencies, it’s a group effort — among central banks, that is.
Up until now, the explorations and considerations of digital currencies — as would be, potentially, issued by central banking systems to bring fiat into digital form — has been done on a country-by-country basis.
But as reported Tuesday (Jan. 21), at least some of those central banks are banding together to form a group that will study ways and means of issuing central bank digital currencies (CBDC).
In a statement released by the Bank of England Tuesday, some details emerged: the Bank of Canada, Bank of England, Bank of Japan, the European Central Bank (ECB), Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS) have created the group — and the focus will be “potential use cases” within those banks’ home jurisdictions.
As noted in the release, the joint efforts will look into “economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums — in particular, the Financial Stability Board and the Committee on Payments and Market Infrastructures.”
It is interesting to note that the group does not include China’s central bank, widely believed to be nearing a launch of a digital version of the yuan, or Australia, which, as noted in this space, has been exploring wholesale payments (i.e. between banks) done through CBDC. The U.S. Federal Reserve is also absent from the roster.
As for what may be underpinning a group effort …
The specter of Libra is there, of course, though it should be noted that the Facebook- and consortium-backed cryptocurrency still has been hitting stumbling blocks. In the most recent spate of news, as reported by Bloomberg, Swiss authorities have said that they cannot approve the crypto in its current form.
Per the news outlet, Swiss Finance Minister Ueli Maurer said in an interview with a Swiss broadcasting firm that Libra “has failed” in its current form — in part because, as Bloomberg said, the “basket of currencies” that would back Libra has not been approved by the banks that issue those currencies.
Libra, whether it makes it beyond the concept stage or not, at least has spurred the central banks to mull how digital currencies might take shape to rival their own dominance within their respective countries and on the world stage.
More immediately pressing might be the advent of China’s digital currency, where that nation has said it has developed a design of its digital offering. Similar to what has been seen with other central bank roadmaps, China would bring its digital yuan first to commercial banks and then to the clients and individual customers of those banks through digital wallets. Interestingly, the Bank of England announcement seems to be an official nod that the U.K. is joining the CBDC fray. Mark Carney, the Bank of England governor, has said in the past that a digital alternative, offered globally, could challenge the dollar’s dominance as a reserve currency.
“By reducing the influence of the U.S. on the global financial cycle, this would help reduce the volatility of capital flows to emerging market economies,” Carney said in an August speech.
Might the joint efforts by these central banks help create (for its own use) the very “basket” that Libra seeks? Might the collaboration seek to level the playing field with China? Consider the Tuesday announcement just the starter’s gun for a race that has just begun.