BIS Says CBDCs Necessary to Keep Government Control of Money

BIS Says CBDCs Necessary to Keep Government Control of Money

Nicholas Pongratz   Wed, June 23, 2021

The Bank for International Settlements (BIS) says central bank digital currencies (CBDCs) are needed to ensure governments retain control of money.

BIS’s remarks come amid the global fall in the use of physical cash. Cryptocurrencies are also gaining traction as both investments and legal tender. This has motivated Big Tech firms to begin developing their own digital currencies. For instance, in 2019 Facebook proposed its Libra digital currency could act as a universal currency. However, widespread condemnation caused it to scale back its intentions to the current Diem project.

It is these ambitions, however, that the BIS is fearful of. They believe that without CBDC digital money would become increasingly dominated by big tech firms. This could happen primarily by them leveraging their enormous social media user base. The loss of control over sovereign money, “that is a place where you don’t want to be, where governments don’t want to be,” said Benoit Coeure of the BIS.

Virtuous Or Vicious Cycle

BIS discussed the potential for CBDCs in a chapter in its latest Annual Economic Report. While applauding advancement in the payment systems, it added that their benefits would depend on their structure and governance. On the one hand, the technology could enable a “virtuous cycle” of broader access, lower costs, as well as better services.

However, the report notes the potential for a “vicious cycle” of data silos, market power, and anti-competitive practices. “CBDCs and open platforms are the most conducive to a virtuous circle,” the report notes.

Global CBDC Development

According to the report, 56 central banks and monetary authorities are at least considering developing CBDCs.

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