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- Central banks that they must prepare for the advent of CBDCs
- European Central Bank is preparing for a 2-year investigation into a digital Euro
- Crypto assets and distributed ledger technology (DLT) were also recognized as financial innovations
The Central Bank soon started working on CBDCs as they saw its potential for the economy. The Bank of International Settlement (BIS), is giving signals to Central banks that they must prepare for the advent of CBDCs.
Benoit Coeure, head of BIS Innovation Hub while addressing the Eurofi Financial Forum in Slovenia said that the Central Bank will have to evolve to be fit for the digital future.
Coeure during the closure of the event discussed the role of Central Banks in the roll-out of CBDCs and the challenges global stablecoins- cryptocurrencies linked to real-world assets like the U.S. Dollars and DeFi platforms will set for existing banking models.
Central Banks focus on CBDCs
Central Banks should start immediately on the CBDCs design as it will take years to be rolled out. Whereas stable coins and cryptocurrencies are already running. This makes it even more urgent to start.
Coeure shared his opinion just after a week when BIS announced it is working with Central Banks in Singapore, Australia, South Africa and Malaysia to test the efficiency of CBDC cross border payments.
Meanwhile, the European Central Bank is preparing for a 2-year investigation into a digital Euro, set to kick off in October.
Crypto assets and distributed ledger technology (DLT) were also recognized as financial innovations that need deeper analysis and potential policy responses by the European Securities and Markets Authority(ESMA) in its risk analysis report of 2021.
These are the new developments that have come with new regulatory questions which require fast and consistent answers, said Coeure. The Central Banks have a job to do to provide financial stability and deliver prices. And for this, it is important to retain their ability to do it.
Stablecoins Vs DeFi
Global regulators are very apprehensive about the growth of Stablecoins and DeFi solutions. As per the ESMA’s risk report, regulators’ nervousness comes from the potential impact mass stablecoin adoption could have on existing financial systems, particularly in the wake of stablecoin issuer. Tether revealed that almost half of its reserves were made up of unspecified commercial paper.
There are a number of implications that Central Banks need to consider. These are how private and public money should coexist in the new ecosystems, and if central bank money is used in DeFi rather than private stable coins.
It is important to keep in mind that CBDCs must meet the expectations of users, protect privacy and data, and improve financial inclusion among other things.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
