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More central banks set to explore crypto
The Bank for International Settlements (BIS) expects more countries to tap into central bank digital currency (CBDC) development.
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he Bank for International Settlements (BIS) expects more and more central banks to begin studying and developing digital currencies in the coming years but warns that authorities must ensure resilience and inclusion.
As of January, 68 central banks have publicly announced that they were working on their own central bank digital currency (CBDC), and 28 others have already launched pilot project, BIS data shows.
Meanwhile, the central banks of Nigeria and the Bahamas, as well as the Eastern Caribbean Central Bank, have issued digital currencies.
Agustín Carstens, the general manager of the BIS, said central banks had to make sure that their digital currency systems could handle millions of transactions per minute so as not go down and thereby keep consumers from using their money.
Central banks also need to ensure that all parts of the country had access to the digital currency, which posed a challenge particularly for countries of huge territory, like Indonesia, Carstens said, adding that a CBDC could help to improve financial inclusion.
“Hopefully, in the next few years, we will see different examples of countries jumping into CBDC more decisively,” Carstens told The Jakarta Post in a video interview on Feb. 8.
“I would say that there is a huge amount of resources [and] intelligence being invested into CBDC. But, again, this is a matter of getting it right rather than getting it fast,” said Carstens, who served as the governor of the Bank of Mexico between 2010 and 2017.
Read also: Bank Indonesia in 'no hurry' over digital currency. What's it all about?
The CBDC concept continues to draw attention as more and more consumers make online transactions, especially during the COVID-19 pandemic that has made people worry about contracting the virus from bank notes.
Some governments also disburse social assistance through digital payments, such as the preemployment card program in Indonesia, which involves e-wallet providers.
While central banks were largely cautious initially, the announcement of social media giant Facebook’s Libra, a digital currency now known as Diem, became the tipping point for central banks, according to a BIS study.
The share of central banks likely to issue a CBDC in one to six years doubled to 20 percent in 2019.
Established cryptocurrencies like bitcoin and ether are continuing to gain in popularity, especially among investors.
In a reflection of strong demand, bitcoin reached a record-high price of US$67,566.83 on Nov. 8, 2021, according to coinmarketcap.com, a cryptocurrency data provider. However, the highly volatile asset dropped to about half that value within months, though it has since recovered somewhat to trade slightly above $42,000 on Sunday.
Carstens said there was a “noticeable expression of alternative money” for cryptocurrencies, yet they had not been able to replace traditional money so far, partly because they served as speculative assets and were not widely available.
Central banks are learning from the innovative technology of cryptocurrencies for the development of their own CBDC, according to Carstens.
“What we want to do as central banks is to learn what is going on in the technology field and find the best application of that for financial markets, and we are doing so,” said the head of the BIS, which on its website describes itself as “a bank for central banks”.
Carstens added that there was no one-size-fits-all policy for implementing CDBC systems, hence solutions would be unique to each country.
Indonesia, which currently holds the Group of 20 (G20) presidency and will host the G20 summit later this year, plans to facilitate a discussion on the general principles of CBDC, in addition to cross-border payment systems and how to bring down transaction costs.
Read also: Indonesia sets six priority agendas for G20 Finance Track
Josua Pardede, the chief economist at publicly listed Bank Permata, said the G20 forum was expected to discuss how to integrate the use of digital currencies when many countries had started rolling them out in the short run.
Learning from the experience of China, Josua said the use of CBDC for cross-border payments had to, among other conditions, comply with regulations in the involved countries and ensure the interoperability with domestic payment systems.
"[In the G20 forum], we hope policymakers can come up with the foundations and principles in the process of integrating CBDCs, although the timeline of the road map varies from one country to another," Josua told the Post in a text message on Friday.
