BIS: Central bank digital currency, the future starts today (they mean business)

Central bank digital currency: the future starts today

Speech by Benoît Cœuré, Head of the BIS Innovation Hub, at The Eurofi Financial Forum, Ljubljana, Friday 10 September 2021.


Distinguished guests, ladies and gentlemen.

Thank you for inviting me to speak here today. We all experienced how the pandemic accelerated the shift to virtual events, but I am pleased that today we are gathering in person.

Yet the world is not returning to the old normal. Payments are a case in point. The pandemic has accelerated a longer-running move to digital. Mobile and contactless payments are already part of our daily lives; QR codes and "buy now, pay later" options are gaining popularity; gloves, badges and Olympic uniforms with payment functions are being prepared for the Beijing Winter Olympics; and the tech-savvy generation will soon dream about money and payments for the metaverse.

Alongside these developments, the world's central banks are stepping up efforts to prepare the ground for digital cash – central bank digital currency (CBDC).1 They have a job to do – delivering price stability and financial stability – and they must retain their ability to do it. Let me explain.

Central bank money has unique advantages – safety, finality, liquidity and integrity. As our economies go digital, they must continue to benefit from these advantages. Money is at the heart of the system and it has to continue to be issued and controlled by trusted and accountable institutions which have public policy – not profit – objectives. Central bank money will have to evolve to be fit for the digital future.

So what are the priorities now? Know where you are going – as Dag Hammarskjöld once said2, "only he who keeps his eye fixed on the far horizon will find the right road". And get going.

Let me elaborate. Why do we need to know where are we going? Because today, the financial system is shifting under our feet.

Big techs are expanding their footprint in retail payments. Stablecoins are knocking on the door, seeking regulatory approval. Decentralised finance (DeFi) platforms are challenging traditional financial intermediation.


They all come with different regulatory questions, which need fast and consistent answers. Banks are worried about the implications of CBDCs for customer deposits. Central banks are mindful of these concerns and are working on answers. They see banks as part of future CBDC systems. But make no mistake: global stablecoins, DeFi platforms and big tech firms will challenge banks' models regardless.

Stablecoins may develop as closed ecosystems or "walled gardens", creating fragmentation. With DeFi protocols,3 any concerns about the assets underlying stablecoins could see contagion spread through a system. And the growing footprint of big techs in finance raises market power and privacy issues, and challenges current regulatory approaches.4 Will the new players complement or crowd out commercial banks? Should central banks open accounts to these new players, and under which regulatory conditions? Which kind of financial intermediation do we need to fund investment and the green transformation? How should public and private money coexist in new ecosystems – for example, should central bank money be used in DeFi rather than private stablecoins?

We urgently need to ask ourselves these kinds of questions about the future. This is the far horizon for the financial system but we are approaching it ever faster. Central banks need to know where they want to go as they embark on their CBDC journey.

CBDC will be part of the answer. A well-designed CBDC will be a safe and neutral means of payment and settlement asset, serving as a common interoperable platform around which the new payment ecosystem can organise. It will enable an open finance architecture that is integrated while welcoming competition and innovation.5 And it will preserve democratic control of the currency.

This brings me to my second message: the time has passed for central banks to get going. We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design. CBDCs will take years to be rolled out, while stablecoins and cryptoassets are already here. This makes it even more urgent to start.

In the design thinking methodologies we use in the BIS Innovation Hub, the ideal product stands in a sweet spot at the intersection of desirability, viability and feasibility. When applied to CBDCs, these translate into three dimensions: consumer use cases, public policy objectives and technology.

We have to ask ourselves why consumers would want a CBDC and what would they want it to do? The recent European Central Bank (ECB) public consultation showed that they value privacy, security and broad usability.6 In order to meet consumers' expectations, CBDCs need to be made to work most conveniently. Payment data must be protected. Digital functions that are not available with cash can be developed, such as programmability or viable micro-payments.

Then CBDCs should meet public policy objectives.7 Central banks exist to safeguard monetary and financial stability for the public good. CBDCs are a tool to pursue this through enhancing safety and neutrality in digital payments, financial inclusion and access, innovation and openness. Important questions remain. How can CBDC systems interoperate, and should offshore use be discouraged?

Technology opens up design choices. System design will be complex. It involves a hands-on operational and oversight role for central banks and public-private partnerships to develop the core features of the CBDC instrument and its underlying system. These features are: ease of use, low cost, convertibility, instant settlement, continuous availability and a high degree of security, resilience, flexibility and safety.8 Complex trade-offs will be addressed by central banks including how to balance scale, speed and open access with security; and how to balance offline functionality with complexity and security.

Across the world, central banks are coming together to focus on their common mission. Charged with stability, they will not rush. They want to move fast, but not to break things. Consultations with payment systems and providers, banks, the public and a broad range of stakeholders have begun in some countries. To build a CBDC for the public, a central bank needs to understand what they need, and work closely with other authorities. The BIS Innovation Hub is helping central banks. We already have six CBDC-related proofs of concept and prototypes being developed in our centres, and more to come.9

The European Union is uniquely placed to face the future. You can build on a state-of-the-art fast payment system, on the strong protections provided by the General Data Protection Regulation and on the open philosophy of the Second Payment Services Directive. The ECB's report on a digital euro sets the stage.

A CBDC's goal is ultimately to preserve the best elements of our current systems while still allowing a safe space for tomorrow's innovation. To do so, central banks have to act while the current system is still in place – and to act now.

I thank you for your attention.

1 On central banks' preparedness for CBDC, see C Boar and A Wehrli, Ready, steady go? Results of the third BIS survey on central bank digital currency, BIS Papers No 114, January 2021. 2 See D Hammarskjöld, Markings, 1963. 3 DeFi protocols refer to the smart contracts that perform the functions in a DeFi platform. 4 See A Carstens, S Claessens, F Restoy and H S Shin, "Regulating big techs in finance", BIS Bulletin No 45, August 2021. 5 See Bank for International Settlements, "CBDCs: an opportunity for the monetary system", Annual Economic Report 2021, June. 6 See ECB, Eurosystem report on the public consultation on a digital euro, April 2021. 7 See Group of central banks, Central bank digital currencies: foundational principles and core features, October 2020. 8 See Group of central banks, op cit. 9 These are: Projects Helvetia, Jura and Arena in the BIS Innovation Hub Swiss Centre, Projects m-CBDC Bridge and Aurum in the BIS Innovation Hub Hong Kong Centre, and Project Dunbar in the BIS Innovation Hub Singapore Centre, see www.bisih.org.


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Multi-CBDC prototype shows potential for reducing costs and speeding up cross-border payments

  • mBridge project builds on initial experimentations from the Hong Kong and Thailand central banks

  • Platform can be an alternative to complexities and inefficiencies of the correspondent banking system

  • Joining up national digital currencies in common interoperable platforms, offer central banks a technological clean slate

A prototype of multiple Central Bank Digital Currencies (mCBDCs) developed by the Bank for International Settlements Innovation Hub and four central banks demonstrated the potential of using digital currencies and distributed ledger technology (DLT) for delivering real-time, cheaper and safer cross-border payments and settlements.


The mBridge project is a cooperation between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority; the Bank of Thailand; the Digital Currency Institute of the People's Bank of China; and the Central Bank of the United Arab Emirates.

The common prototype platform for mCBDC settlements was able to complete international transfers and foreign exchange operations in seconds, as opposed to the several days normally required for any transaction to be completed using the existing network of commercial banks and operate in a 24/7 basis. The cost of such operations to users can also be reduced by up to half, according to the project's report published today.

Benoît Cœuré, Head of the BIS Innovation Hub: "The prototype is part of our efforts to design CBDC technology. The project includes experimenting with use cases and trials, balanced with analysis of governance, policy and legal considerations with a focus on cross-border use."

Correspondent banks

Payments, foreign exchange transactions and other operations usually travel across the world within the networks of large global banks, which serve as bridges between jurisdictions, a system generically known as correspondent banking. While serving a critical economic role, these networks and arrangements can be complex, sometimes fragmented, and involve operational inefficiencies. For example, banks work in different time zones, subject to the operating hours of national payment systems. Also, legally required safeguards to combat money laundering, tax evasion or terrorism financing are repeated by financial institutions in the network.


According to the BIS's most recent Annual Economic Report, mCBDCs, which join up national digital currencies in common interoperable platforms, offer the greatest potential for improving today's systems' limitations. They provide central banks with a "clean slate" start, not burdened by legacy arrangements or technologies.


The mBridge project builds upon the initial investigation by the central banks of Hong Kong and Thailand (Project Inthanon-LionRock), which first proved the viability of a common CBDC platform between two jurisdictions, by testing critical features such as transaction privacy, foreign exchange matching, monitoring and compliance. The current phase of the project broadens the geographic and diversity of currencies and use cases, adding the Digital Currency Institute's experience with rolling out the e-CNY pilot in China, and the learnings by the Central Bank of the United Arab Emirates from developing a single-currency blockchain solution with Saudi Arabia (Project Aber).


Going forward, mBridge will continue to explore existing limitations of the current platform, related to privacy controls, liquidity management and the scalability and performance of DLT in handling large transaction volumes. In addition, the project pipeline will incorporate policy requirements and measures to ensure compliance with jurisdiction-specific regulations, along with testing and investigating appropriate governance models. The project's next phases are expected to include trials in a safe/controlled environment with commercial banks and other market participants. Bénédicte Nolens, Head of the BIS Innovation Hub, Hong Kong Centre: "Enabling faster and cheaper cross-border wholesale payments, including to jurisdictions that don't benefit from a vibrant correspondent banking system, would be positive for trade and economic development; mBridge investigates these public good outcomes through a new DLT payment infrastructure that sits at the cross-roads of participating central banks."


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Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments



Joint report by the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People's Bank of China and the Central Bank of the United Arab Emirates.


A prototype of multiple Central Bank Digital Currencies (mCBDCs) developed by the Bank for International Settlements Innovation Hub and four central banks demonstrated the potential of using digital currencies and distributed ledger technology (DLT) for delivering real-time, cheaper and safer cross-border payments and settlements.

The mBridge project is a cooperation between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority; the Bank of Thailand; the Digital Currency Institute of the People's Bank of China; and the Central Bank of the United Arab Emirates.

The common prototype platform for mCBDC settlements was able to complete international transfers and foreign exchange operations in seconds, as opposed to the several days normally required for any transaction to be completed using the existing network of commercial banks and operate in a 24/7 basis. The cost of such operations to users can also be reduced by up to half, according to this report.


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Christine Lagarde: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament

Introductory statement (via videoconference) by Ms Christine Lagarde, President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Frankfurt am Main, 18 March 2021.



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Big tech regulation: what is going on?


Several regulatory initiatives have emerged in China, the European Union and the United States to address new challenges presented by big techs. While each of these jurisdictions has focused on different policy areas, the greatest number of initiatives have been conducted in the area of competition. The initiatives generally seek to achieve a balance between addressing the different risks posed by big techs and preserving the benefits they bring in terms of market efficiency and financial inclusion. While recent initiatives constitute important steps in addressing risks posed by big techs, additional regulatory responses might be needed. These will include the development of entity-based rules to address the unique combination of risks posed by big techs.


This paper reviews various regulatory initiatives developed in China, the European Union and the United States. It offers a typology of regulatory actions and focusses on five policy domains: competition, data, conduct of business, operational resilience and financial stability.

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Central banks and the BIS explore what a retail CBDC might look like


  • Seven central banks and the BIS take forward their work on retail central bank digital currencies and analyse policy options and practical implementation issues

  • New set of reports explores how CBDCs could best meet users' future needs through developing interoperable systems that support private innovation while preserving public trust

  • Extensive cooperation and dialogue will be required to develop and run a CBDC, preserving the centrality of central bank money for future systems that anchor public trust and support public welfare

For central bank digital currencies (CBDC) to work effectively, public and private institutions need to cooperate to ensure integration with existing payments systems; to anticipate customers' future needs; and to support innovation while preserving public trust, privacy and stability in the broader financial system.


These are the main conclusions of a new set of reports issued by seven central banks and the Bank for International Settlements (BIS) that looked into users' needs, technological design options and financial stability implications of retail or "general purpose" CBDCs.

Building on an initial report outlining foundational principles for CBDCs published in 2020, the group formed by Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS has now turned to practical policy and implementation issues. While none of these central banks has yet decided to proceed with a retail CBDC, they believe continuing to work on the topic is key, due to its wide-ranging implications.


Delivering on the future needs of consumers would require systems that encourage innovation, choice and competition among a diverse mix of intermediaries. The first report explores how private-public collaboration and interoperability can be designed into CBDC systems to achieve this objective. Developing and running a CBDC system would be a major undertaking for any central bank. In particular, policies about privacy and access to payment data would be key design elements in order to maintain public trust.


The second report focuses on how a CBDC could best serve people and businesses in a fast-changing technological landscape. Lessons from previous payment innovations compiled in the report, show that success often requires harnessing network effects and not requiring users to obtain new devices. Nonetheless, there would not be a "one-size-fits-all" solution and CBDC adoption strategies would need to consider multiple perspectives through public consultations.


The third report outlines the possible impact of CBDC issuance on banking systems, in terms of intermediation capacity and overall resilience. Preliminary analysis highlights the importance of allowing the financial system time to adjust and the flexibility to use safeguards to influence CBDC adoption.


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Central bank digital currencies - executive summary


A group of seven central banks (Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank and Swiss National Bank), together with the Bank for International Settlements, are working together to explore central bank digital currencies (CBDCs) for the public ("general purpose" or "retail'' CBDC).

Here is a summary of progress made since publishing a report in October 2020 setting out the common foundational principles and core features of a CBDC. Alongside the executive summary, three detailed reports are also being published:


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