LONDON (Reuters) – Central banks should think hard about potential risks and spillovers before issuing their own cryptocurrency, the Bank for International Settlements (BIS) said in a report on Monday.
The report by two committees at the BIS, a forum whose members include the U.S. Federal Reserve and European Central Bank, is wary of central banks issuing their own central bank digital currency, or CBDC.
“There are risks we do not fully understand at this point,” said Jacqueline Loh, chair of the BIS markets committee.
“Any step towards a possible launch of a CBDC should be subject to careful and thorough consideration,” added Loh, who is also deputy managing director of the Monetary Authority of Singapore.
The report looks at the possible impact of a “wholesale” digital currency only for a limited audience like banks, and a “retail” version for all.
Benoit Coeure, who chairs the BIS committee on payments and market infrastructure, said there was more caution with the “uncharted waters” of a retail CBDC.
It could impact deposits, a major source of funding for commercial banks, with implications for financial stability in times of market stress, the report said.
There was no evidence that digital currencies would allow central banks to implement monetary policy better than with tools they already have.
No bank has issued a digital currency, though the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments. It said last month its study won’t be finalised until late 2019, later than initially indicated.
The BIS report said blockchain or the distributed ledger technology (DLT) that underpins cryptocurrencies, could make settling trades of securities and forex more efficient.
“DLT is where the action is,” said Coeure, who is also an ECB executive board member.
Bank of England Governor Mark Carney said that while a CBDC needed careful consideration, a more immediate priority is how to use the new technologies to meet the current demand for fully reliable, real-time payments…