A coalition of seven central banks – the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve Board of Governors, Sveriges Riksbank, and the Swiss National Bank – in collaboration with the Bank for International Settlements (BIS), has been examining key aspects of central bank digital currencies (CBDCs) designed for public use. Despite ongoing research, none of the participating jurisdictions has yet decided to issue a retail CBDC.
Since its inception, the group has released a series of reports aimed at shaping the conversation on CBDCs. In October 2020, they outlined the foundational principles and core features of CBDCs. This was followed in September 2021 by detailed reports addressing system design and interoperability, user needs and adoption, and financial stability implications. Most recently, in May 2023, the group issued a note on policy perspectives.
Their latest efforts delve into the legal and system design considerations of retail CBDCs, summarised in two new papers:
Legal Challenges of Retail CBDCs
The legal paper explores critical questions that any jurisdiction considering a retail CBDC must address. These include:
- The legal classification of retail CBDCs
- The obligations and liabilities of participants in the CBDC ecosystem
- Privacy concerns and financial crime prevention
- Cross-border implications
While the paper does not offer definitive answers, it highlights the extensive legal work required to tailor legislative, regulatory, and contractual frameworks to fit a jurisdiction’s unique legal systems, CBDC design, and policy objectives.
System Design for Retail CBDCs
The second paper focuses on designing robust CBDC systems, covering four key areas:
- Privacy: Ensuring user data is secure while balancing transparency for regulatory needs.
- Cybersecurity: Addressing threats, including those posed by quantum computing.
- Offline Functionality: Providing resilience in the event of internet outages.
- Point-of-Sale Considerations: Enabling smooth integration into everyday transactions.
These challenges are deeply interconnected, requiring central banks to adopt a comprehensive approach. Collaboration within institutions and with private sector experts is seen as essential for developing effective solutions.
A Collaborative Approach
This joint effort reflects a shared commitment to advancing the understanding of CBDC-related challenges and opportunities. Insights gained from individual central bank research and experiments are pooled to ensure a more cohesive global perspective. While the group refrains from making specific policy recommendations, their work lays the groundwork for informed decision-making in jurisdictions considering the implementation of retail CBDCs.
As central banks continue to explore the complexities of retail CBDCs, these reports mark a significant step towards addressing the legal and design hurdles that lie ahead.
