The Bank for International Settlements established a series of criteria that countries should consider when adopting a CBDC.
BIS developed the report in conjunction with the World Bank and IMF.
The BIS believes that CBDCs contribute to the banking inclusion of individuals.
One of the advantages of central bank digital currencies (CBDCs) is the ability to facilitate cross-border payments, something that the Bank for International Settlements (BIS) has been promoting for a couple of years.
Along with the World Bank and the International Monetary Fund (IMF), the financial entity has once again deployed a series of recommendations on CBDCs because they consider that "international cooperation and coordination is needed in the early stages of the design" of a currency of this type, as they point out in the document. In the report, the international bank unveils five criteria that, in its opinion, central banks should take when adopting a digital currency.
The five criteria proposed by the BIS
The first criteria highlighted by the BIS is "not to harm" here. They refer to the design of CBDC ecosystems that support public policy objectives and do not impede the ability of central banks to fulfill their mandates.
Secondly, they talk about "improving efficiency." Here they believe that monetary authorities can achieve this by adopting state-of-the-art technology compared to legacy systems. They say it is also possible to achieve that goal by fostering a level playing field and competition.
"Increase resilience" is the third criterion. The BIS believes that CBDC ecosystems, with their payment instruments and infrastructures, could "provide an independent alternative to existing payment instruments and systems." CBDCs would assist "to the overall resilience of the overall payments landscape in the domestic and cross-border context."
Another criterion relates to interoperability between CBDCs and other types of money, such as cash. They suggest that the two alternatives should "complement each other and coexist." The idea is to deliver more payment choices that support public policy objectives and include and support private money.
Finally, the BIS defines another criterion as "financial inclusion," whereby CBDCs "should not impede and, where possible, should improve access to payment services for those currently excluded."
CBDCs must accommodate the demands of each country
Cecilia Skingsley of the Committee on Payments and Market Infrastructures believes governments must work out cross-border payments with CBDCs early. The BIS suggests that any system must be built with the "flexibility to adapt to a changing world" and the different CBDC designs. As such, each central bank designs according to its needs.
These differences in each nation's digital currencies, especially in cross-border payments, need to be worked out among central banks early, suggests Cecilia Skingsley of the Committee on Payments and Market Infrastructures.
"Only then can CBDCs significantly impact the costs, speed, access, and transparency of cross-border payments," Skingsley added. This information went in line with another BIS report a few days ago. They also highlight the role of CBDCs because they offer a "more stable solution for a future monetary system" over cryptocurrencies.
They say this in contrast with Bitcoin, an issued and self-regulated currency without the need for a third party to intervene, preventing a central financial body from imposing regulations on any country's monetary system, which would leave central banks out of the international economic game.