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Impact of digital currencies on payments, financial stability and monetary policy

What are the implications of digital currencies for the general public or digital currencies just for financial institutions? A BIS report looks at impacts of both types of digital currency on financial stability and monetary policy. The report, compiled by the Committee on Payments and Market Infrastructures (CPMI) and the Markets Committee, found that these issues should be considered carefully by central banks and that the greatest benefits of a digital currency would be in the area of wholesale payments, clearing and settlements.

Digital currency could be revolutionary

The Chair of the CPMI, Benoît Coeuré, said: “Central bank digital currencies could help make settling trades of securities and foreign exchange more efficient in the future. But more work and experimentation would be needed to explore these benefits.” He added: “General purpose central bank digital currencies could revolutionise the way money is provided and the role of central banks in the financial system, but these are uncharted waters, with potential risks. This report is a starting point for further discussion and research and will help countries make choices given their own circumstances.”

The report, which was released ahead of the meeting of the Group of 20 (G20) central bank governors and finance ministers, due to take place in Buenos Aires on 19-20 March, acknowledges a range of possibilities for digital currencies, varying by degrees of access (public/wholesale), anonymity, availability and interest-bearing characteristics. But it focuses on two types of central bank digital currency: a wholesale currency limited to select financial institutions, and a general purpose currency accessible to the public. The report analyses the implications of both types in three core central banking areas: payments, monetary policy implementation and financial stability.

CTMfile take: The report also considers whether a CBDC could be introduced as an alternative to cash, and whether it would prove to be a safe, robust and convenient payment instrument.

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