The Bank for International Settlements (BIS), one of the most important financial institutions in the world, reaffirmed its support for the digital currencies of central banks (CBDCs) this last Thursday (23). In a report, experts linked to the entity argued that this type of state cryptocurrency could offer “unique advantages”, being designed for the public good and for the evolution of the digital payment system.
The document “CBDCs: an opportunity for the monetary system” states that central bank digital currencies are the transition from fiat to digital money, making it more suitable for its virtual use and enabling the creation of a modern instant clearing system , easy and safe.
CBDCs are a global trend
Central bank digital currencies are becoming a trend around the world. While China is the most advanced country in this technology, with the digital yuan already in circulation and in the final stages of testing before a national implementation, the United States and the European Union are studying the benefits of possible state cryptocurrencies so as not to lose their current sovereignty currency of the US dollar and the euro.
Japan began testing the digital yen at the beginning of April, while Israel announced this week that it has successfully completed a first implementation of the pilot version of the digital shekel. In Brazil, the Central Bank released in May the first guidelines for a possible digital real.
BIS provides guidelines for creating CBDCs
BIS has detailed a standard architecture for future CBDCs. According to the entity, this type of cryptocurrency is best designed “as part of a two-tier system, in which the central bank and the private sector each play their respective roles”.
Advising central banks, the institution added: “A logical step in its project is to delegate most operational tasks and consumer-facing activities to commercial banks and non-bank PSPs that provide retail services on a level playing field. Meanwhile, the central bank can focus on operating the core of the system.”
The BIS also brought guidelines for the highly controversial privacy issues, which are a priority in the creation of CBDCs to provide maximum security for users of the state cryptocurrency while closing any loophole that could facilitate its use for money laundering and other illicit activities .
Thus, the BIS stated that it is in favor of robust identification protocols for users of the state digital currency. According to the report, a CBDC that offers full anonymity features would pave the way for illegal financial activities. Therefore, the entity suggests that central banks structure their cryptocurrencies on the existing digital identity architectures, such as tax records, property records and education certificates.
However, this type of system will also require even more modern security measures to ensure the protection of the personal data of CBDC users. Currently, this concern is one of the main reasons that lead governments such as the United States to consider whether or not to launch a cryptocurrency, given the growth of cybercrime in recent years. The situation becomes even more complex in the context of international transactions, an extremely important feature for a state digital currency to succeed.
Bitcoin and private cryptocurrencies are criticized
While the BIS report highlights the potential benefits of creating central bank digital currencies and provides guidelines to guide governments around the world in this process, the BIS has not failed to criticize private cryptocurrencies, particularly bitcoin (BTC).
The Bank highlighted that the digital asset is the target of a lot of speculation, which makes it unstable and dangerous for investors. In addition, the BIS stated that cryptocurrency is used in money laundering activities and is commonly required as payment for ransomware attacks. Finally, the institution made it clear that bitcoin is not optimized and that its mining consumes a lot of energy, leaving a huge carbon footprint.
With information: Cointelegraph