G7 finance officials endorse principles for central bank digital currencies
Recently, G7 finance officials have endorsed public policy principles for retail central bank digital currencies (CBDCs).
A retail CBDC will virtually be a digital form of central bank currency. It will be denominated in the nation’s unit of account and separate from electronic reserves and physical cash.
CBDCs are fundamentally different from privately issued digital currencies such as stable coins. Stable coins are a digital currency that is controlled by a stable reserve asset such as the US dollar or gold.
Public policy principles are placed in two categories:
Fundamental issues: Monetary and financial stability; Legal and Governance Framework; data privacy; operational flexibility and cyber security etc.
Opportunities: Digital Economy and Innovation; financial inclusion; cross-border practicality; International Events etc.
With increasing digital payments and emerging forms of public and private currency, CBDCs are considered important to central banks for the following reasons:
- To ensure monetary and financial stability in its jurisdiction through reliable currency. To promote innovation and financial inclusion along with providing safe and efficient modes of transactions.
- To make the universality of payment systems more real time based and cost effective.
- Earlier, the central banks of Australia, Malaysia, Singapore and South Africa launched the Dunbar project to test the use of CBDCs for international settlements.
- It aims to allow direct transactions between institutions, reduce costs and accelerate transaction speed.
Source – The Hindu