Federal Reserve, 6 Other Central Banks Set Out Core Digital Currency Principles

A group of seven central banks along with the “central bank for central banks” has released a report setting out initial principles for how national digital currencies can help implement monetary policies.

• Issued Friday, the report – "Central bank digital currencies: foundational principles and core features" – was prepared by the central banks of Canada, the U.K., Japan, Sweden and Switzerland, as well as the U.S. Federal Reserve, the European Central Bank and the Bank for International Settlements (BIS).
• It sets out several "core principals" for central bank digital currencies (CBDCs) and how they should be designed.
• Firstly, a CBDC should work alongside cash and other current payment types "in a flexible and innovative payment system."
• Secondly, it should support "wider policy objectives" and "do no harm" to monetary and financial stability.
• Thirdly, it should "promote" innovation and efficiency.
• In the report, the group says that, while central banks have been providing money to citizens for hundreds of years, "the world is changing."
• In an increasingly digital world, central banks have started researching the benefits and risks of offering a "general purpose" digital currency as a way to "evolve" and pursue public policy objectives.
• The group has now agreed that to move to an issuance of a CBDC, a nation must meet the three core criteria.
• "A CBDC robustly meeting these criteria and delivering the features set out by this group could be an important instrument for central banks to deliver their public policy objectives," the report states.
• While the group pledged to continue with research and collaboration on this topic, it said that study is not a commitment to any actual issuance.
• In a separate report Thursday, the Bank of Japan said it would move on to tests looking at the technical feasibility of the core functions and features required for CBDC. That proof-of-concept may then be followed by a pilot program "if necessary."
• South Korea's central bank also said this week it would conduct tests of a digital won through 2021.
• The sudden spate of announcements from global central banks regarding CBDCs comes as China appears to be fast moving closer to a launch of its digital yuan.
• The People's Bank recently revealed some of the results of real-world tests of the initiative, indicating that 3.1 million digital yuan transactions had been made in a commercial setting, for an amount worth $162 million.

Also read: ‘It’s Something We’re Studying’: Deputy Treasury Secretary Discusses US CBDC Plans