Bank for International Settlements (BIS) General Manager Agustin Carstens. Image: Fabrice COFFRINI/ AFP
On September 23, at the BIS Innovation Hub-Financial Stability Institute conference in Basel, Switzerland, Agustín Carstens, general manager of the Bank for International Settlements (BIS), underscored the importance of legal frameworks in the advancement and evolution of Central Bank Digital Currencies (CBDCs) around the world.
A legal framework is fundamental in establishing legitimacy and fostering trust in money. The same applies to CBDCs or any other currency. According to an IMF paper published in 2021, nearly 80 percent of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear. This needs to be rectified, the BIS General Manager opines.
Agustin finds it unacceptable that unclear or outdated legal frameworks could impede the deployment of CBDCs. He believes that addressing these issues should commence immediately and progress rapidly.
The BIS General Manager said a CBDC needs to function within a clearly defined rights and obligations framework. The privacy of users, the integrity of the financial system and the ability of users to choose between forms of money are three core elements that must be preserved.
He highlighted that cash usage is declining with time, and users are increasingly demanding new, versatile forms of money. In this context, he points out, “Increasingly, central banks around the world are examining how CBDCs could address these demands. According to a CPMI survey, in 2022, 93% of central banks were engaged in some form of CBDC work. Of these, more than half were running concrete experiments or working on pilots.”
Agustin’s observations are pretty accurate if we look at the development of CBDCs around the world. As the Atlantic Council tracks, 130 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages.
In 2023, India has run a pilot for its own CBDC, the ‘Digital Rupee’, with over a million users registered. In the same year, the National Bank of Kazakhstan has launched a pilot for their CBDC, which is set to run through 2025. Meanwhile, after conducting a closed pilot program with financial institutions in 2023, the Central Bank of Brazil president Roberto Campos Neto also aims to launch a CBDC in 2024.
As rightfully said by Agustin while concluding his speech, “By building a robust legal framework, we can all ensure that CBDCs will flourish.” The conference showcased the commitment of BIS towards enhancing the digital currency and financial innovation space.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash