BIS leader says central bank digital currencies could resolve 'long-standing' payments issues

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Agustín Carstens, the general manager of the Bank for International Settlements, recently took the stage to promote central bank digital currency over other payments solutions. 

Speaking virtually before the Peterson Institute for International Economics on March 31, Carstens broke down the various solutions available for bringing international payments up to speed with the modern era.

The BIS has long served as a critical link between central banks. Recent years have seen that mission extend to heavy investment in new financial technologies, especially research into CBDCs.

Currently, payments between users in separate countries depend on transfers between their respective central banks, which, in turn, have to collateralize their own transactions heavily with their respective currencies and central bank money. The underlying settlement process is not that much faster than it was 40 years ago, despite various faster payments solutions (FPS) emerging.

On the subject, Carstens was optimistic that central bank digital currencies would prove better for retail users, despite surface similarities:

"From the user perspective, these solutions may look very similar. What distinguishes a retail FPS from a retail CBDC is that the latter is a central bank liability offering the unique features of central bank money, and this could be a key difference."

Regarding inter-bank payments, often called wholesale payments, Carstens also noted that the current dependence on central bank money added complications that modern technology — namely, a CBDC — could streamline:

"In contrast, the same transaction in a CBDC-based payment system would be much simpler, as a payment only involves transferring direct claims on the central bank from one user to another. There is no credit risk: funds are not on the balance sheet of an intermediary, and transactions are settled directly in central bank money, on the central bank’s balance sheet, in real time."

Central banks have reported increasing interest in CBDCs over the past year, which has commercial banks concerned. Banks generate money by shuttling money between central banks and end-users. In what is perhaps a nod to that dynamic, Carstens noted that "[b]anks should continue to play their intermediation role between savers and investors."

The BIS executive was less clear on the actual technological nature of the proposed CBDC.

"Whether the CBDC is token- or account-based, the principle is the same," he said. Such longstanding restraint from commitment to a single technology has been a feature at not just the BIS, but for all banks tinkering with CBDC proposals. 

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