Central bank digital currencies (CBDCs) are often touted as a way to improve financial inclusion, efficiency, and innovation. However, they also come with significant risks that could undermine the stability and security of the global financial system, according to a new report by the Bank for International Settlements (BIS).
The report, titled “CBDCs: An Opportunity for the Monetary System”, warns that CBDCs could pose challenges to central banks’ operational resilience, cyber security, monetary policy, and financial integrity. It also cautions that CBDCs could have unintended consequences for the banking sector, the payment system, and the international monetary order.
The report urges central banks to carefully weigh the costs and benefits of CBDCs before launching them and to coordinate with other authorities and stakeholders to address the potential risks. It also recommends that central banks adopt a “principles-based” approach to CBDC design, rather than a “one-size-fits-all” solution.
BIS Report Warns of the Risks and Challenges of CBDCs
The report’s findings echo the sentiments of many critics and skeptics from the cryptocurrency community regarding CBDCs, who argue that they are unnecessary, dangerous, or impractical. For instance, some observers have pointed out that CBDCs could erode the privacy and anonymity of users, expose them to surveillance and censorship, and increase the power and control of central banks over the economy and society.
Moreover, some evidence suggests that CBDCs are not very popular among the public, especially in countries where existing payment options are already efficient and convenient. For example, a recent public consultation by the Bank of Canada revealed that Canadians are reluctant to embrace the digital Canadian dollar, despite having a high level of awareness of the concept. The majority of respondents preferred cash over CBDCs and advised the central bank to stop its research and development efforts on the project.
Therefore, it seems that CBDCs are not the panacea that some proponents claim they are. Rather, they are a risky and controversial experiment that could have far-reaching and unforeseen implications for the future of money and finance. Central banks should proceed with caution and humility, and not rush to join the CBDC bandwagon without proper preparation and consultation.
