BIS Report: Central Bank Should Focus On Customer Needs For Their CBDCs

Recently, a number of central banking institutions have been exploring routes to have a central bank digital currency (CBDC) controlled and monitored by them and tied to their respective national currency.

The reason behind considering this CBDC model is the use of the blockchain technology that facilitates instant global payments and very low costs. Several technology companies have been shifting to the use of blockchain technology citing its potential benefits.

Furthermore, these BigTech giants citing a potential opportunity in the FinTech and payments industry and making massive inroads. This has forced traditional banking institutions and government agencies to seriously think on having their CBDCs.

The Bank of International Settlements (BIS) has recently released a report saying that CBDCs should be designed to potentially address end-users’ needs. The BIS is a global financial institutions collectively owned and governed by central banks across the globe.

The report analyzes several “trade-offs” required for designing central bank digital currencies. Thus, while making these developments, the BIS urges central banks to primarily focus on customers’ needs and practicality.

Some of the major customers’ needs as mentioned by the BIS include privacy, ease of use, cash-like safety, universal access, cross-border payments, and cash-like peer-to-peer usability. While mentioning other such requirements, the BIS asks central banks to ensure that they are followed before bring their CBDCs to the market.

The report states: “The consumer’s need for cash-like payment safety means that a CBDC must be secure not only from the insolvency or technical glitches of intermediaries, but also from outages at the central bank. When it comes to achieving resilience, neither a DLT-based system nor a conventional one has a clear-cut advantage. This decision can only be made once the architecture has been decided upon, as DLT is only feasible for some operational setups.”

The guidance also asks for three different models for CBDCs. All these models differ from each other based on the intermediaries and the whole use of CBDCs.