Bank of International Settlements [BIS] recently reported the possible creation of the Central Bank Digital Currencies [CBDCs]. The report stated both advantages and risks possessed by these kinds of developments. The research was conducted by the Committee on Payments and Market Infrastructures and the Markets Committee of BIS.
Listing out the potential risks and future uses of these digital currencies which are backed by the state, BIS stated that;
“these bank-issued virtual currencies could have dire consequences for the global financial system.”
As these digital currencies fight for space with the already existing fiat currency, it is also maintained by the respective central banks.
The report was divided into two types of variants, namely:
- Public – which aims at only the general public
- Wholesale – which aims at big financial institutions.
The report said a CBDC can affect the business of private sector by allocating resources in any case of a digital run which can demand an overall economic loss in cases of unnecessary allocation of resources.
CBDC is claimed to take force on private banks to up the transactions and other fees. It aims at not ending up in any kind of loss which might drive away customers. CBCD will also take away the mode of payments from private banks, as digital currencies can be used for payments.
A report published by ECB and DNB states that;
“It could move central banks into uncharted territory and could also lead to greater political interference”.
Jacqueline Loh, the Chair of the BIS markets committee says:
“Any step towards a possible launch of a CBDC should be subject to careful and thorough consideration.”
He said that central banks who have plans to release their own digital currency should consider all the risks involved in it. The digital currency should be protected from money laundering [AMD] and even against terrorist financing.
In the end, the report even admitted that despite all its faults, Bitcoin has put the spotlight on an old failing of their current system: cross-border retail payments.
The report ensures a ‘robust design and operation of the CBDC’. According to reports, BIS has released the preliminary reports on state-issued cryptocurrency back in September 2017.
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