Central banks team up to study case for digital currencies

Some of the world’s major central banks are teaming up to assess potentially developing their own digital currencies, acknowledging that their role is being challenged by new technologies and private sector initiatives such as Facebook's Libra.

A group has been formed in order to “share experience as they assess the potential cases for central bank digital currency in their home jurisdictions,” according to joint statements on Tuesday. The body will be made up of the Bank of England, Bank of Canada, the Bank of Japan, the European Central Bank, the Riksbank and the Swiss National Bank, along with the Bank for International Settlements.

“The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies,” the BOE statement said. It will be co-chaired by BOE deputy governor Jon Cunliffe and former-ECB official Benoit Coeure — now head of the BIS’s innovation hub.

Absent from the group is the People’s Bank of China, which is poised to become the first major central bank to issue a digital version of its currency.

Another key absence from the new group is the Federal Reserve, which has so far largely distanced itself from the concept of a CBDC. In December, Treasury Secretary Steven Mnuchin said he and Fed Chairman Jerome Powell see “no need” for the U.S. to create a digital currency in the near future. Yet Powell has said the Fed is monitoring the activities of other central banks to identify potential benefits.

Coeure has previously said he’s “personally pretty sure” that digital tokens backed by public authorities will be part of the future.

The debate around such a currency intensified last year when BOE Governor Mark Carney laid out a radical proposal for an overhaul of the global financial system that would eventually replace the dollar as a reserve with a Libra-like virtual token.

While Facebook’s plans sparked a backlash among governments, Libra raised the question of whether public authorities risk being left behind as consumers turn to private-sector initiatives that skirt the traditional banking system.

ECB policymakers, under the new leadership of Christine Lagarde, have already discussed the idea of issuing their own digital currency. She has long argued that central banks should consider the merits, which she believes include public goals such as financial inclusion, consumer protection and payment privacy.

Internal documents have shown the ECB also sees a case for such a move, if the private sector can’t make cross-border payments faster and cheaper.

Lagarde could face pushback though, including from Jens Weidmann, who heads Germany’s Bundesbank and has urged caution.