Economy

60% of central banks are already studying how to launch their own digital currencies, says BIS

The entity's new report also points out that 86% of institutions are interested in the matter and that 14% already have pilot projects in progress or completed

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  • In Latin America, there are already some examples of currencies being tested: D-cash, from eastern Caribbean islands, and El-Peso from Uruguay, which has already finished its pilot;
  • Chile and Brazil are examples of countries studying the matter.

The digitization accelerated by the COVID-19 pandemic and the possibilities of financial inclusion that come with the phenomenon are causing central banks to accelerate plans for creating their own digital currencies (CBDCs). A survey by Bank for International Settlements (BIS), released this week, shows that 86% of institutions are interested in the matter, 60% are already studying or investigating the possibility, and 14% are testing pilot projects for CBDCs. In 2017, a similar BIS survey showed that only 64% of institutions were interested in CBDCs.

On Friday, Jerome Powell, chair of the U.S. Federal Reserve, said that a study on the benefits and risks of an American CBDC would be disclosed this summer.

In Latin America, there are already some examples of currencies being tested: D-cash, from eastern Caribbean islands, and El-Peso from Uruguay, which has already finished its pilot. Chile and Brazil are examples of countries that are still studying the matter.

READ LABS SPECIAL COLLECTION: From open banking to instant payment: what’s going on in Latin America

The Brazilian Central Bank created, in August last year, a working group to study the issue. “The amount of electronic payments has been growing in recent years, thanks in particular to the evolution of mobile access and communications technologies. However, our money remains materialized in paper and metal circles, and there is still no digital representation of money accessible to the citizen. So, a digital currency issued by a central bank would allow Brazilians to interact with their money in a completely electronic way,” explained the study group coordinator, Aristides Andrade Cavalcante Neto, from the Central Bank’s Information Technology (Deinf) department, in a press statement.

According to the newspaper Valor Econômico, among the issues under study by the Brazilian Central Bank are: whether the entity will be the sole issuer and custodian of the currency, whether the currency will offer remuneration, and whether it will be traceable. Although the BCB’s president, Roberto Campos Neto, had mentioned “2022” in previous interviews, there is no date for starting a pilot project.

The launch of a project like this depends on the progress of other initiatives at the Brazilian Central Bank’s digital agenda, called Agenda BC#, such as the country’s instant payments system PIX, the open banking regulation, and a new exchange legislation, which has to be voted by the Senate. The authority’s goal with all these projects is to build a system that is not only digital but interoperable.

READ ALSO: Brazil’s instant payments system PIX transactions surpasses traditional banking transfers in the country

Traditionally, monetary systems are organized around an “anchor.” Any payment instrument in a monetary system is linked to a fixed anchor value. This anchor can be a commodity or a fiat currency, for example. Digital currencies (or CBDCs) follow a similar logic, although much more fluid, and therefore have different goals than cryptocurrencies. They can operate as a digital form of the official currency already issued by central banks, enjoying guarantees similar to “physical” ones.

According to BIS, digital currencies have the potential to emerge as “central foundations for large social and economic platforms” capable of “transcending national borders,” as the new means of payment already do. A consequence of this is the total reshaping of the nature of monetary competition, in addition to a profound transformation of “the architecture of the international monetary system, and the role of government-issued public money.”

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