Legal frameworks ensuring user privacy and the freedom to choose between central bank digital currencies (CBDCs) and other forms of money will be key in driving CBDC adoption, according to the head of the Bank of International Settlements.
Speaking at the BIS Innovation Hub conference in Switzerland on Sept. 27, BIS general manager Agustín Carstens stressed that legal frameworks remain a key consideration in the development and proliferation of CBDCs around the world:
“Most fundamentally, the legitimacy of a CBDC will be derived from the legal authority of the central bank to issue it. That authority needs to be firmly grounded in the law.”
He added that different countries’ laws specify what types of money their central bank can issue, which typically includes physical cash, as well as credit balances on current and reserve accounts:
“According to an IMF [International Monetary Fund] paper published in 2021, close to 80% of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear.”
Carstens also referred to a BIS study that indicates 93% of the world’s central banks are engaged in developing CBDCs at various stages. Considering that most of these institutions are actively looking to meet public demand for digital forms of fiat, the BIS chief said outdated or unclear legal frameworks hindering their deployment were unacceptable.
Criticisms aimed at the potential misuse of CBDCs for enforcing social credit scores were also addressed. According to Carstens, a CBDC needs to function with a framework of defined rights and obligations.
The BIS general manager said three core elements are imperative, including preserving the privacy of CBDC users and their data, the integrity of the financial system, and people’s right to choose between a CBDC and other forms of money.
Carstens noted that different countries have differing trends relating to the use of cash and adoption of digital payments and that a retail CBDC may well be expected to coexist alongside cash and commercial bank money:
“A central bank that introduces a CBDC should increase the choices for society, not diminish them.
As previously reported by Cointelegraph, China continues to drive the development and use of its digital yuan CBDC program. The latest update to its pilot e-CNY app now allows tourists heading to China to pre-charge their digital yuan wallets using Visa and Mastercard payments.
Meanwhile, in the United States, the CBDC Anti-Surveillance State Act bill aimed at preventing the U.S. Federal Reserve from issuing a CBDC passed a vote in the House Financial Services Committee on Sept. 21. The bill will head to Congress next as it looks to fight “state control over currency.”