Legal frameworks are needed by countries to support the creation and integration of central bank digital currencies (CBDCs), according to Agustin Carstens, general manager of the Bank for International Settlements (BIS).
Speaking at a conference in Switzerland on Wednesday, Carstens said: “It is simply unacceptable that unclear or outdated legal frameworks could hinder their deployment. The work to address these issues needs to begin in earnest. And it needs to proceed at pace.”
He pointed towards the International Monetary Fund paper from 2021 that revealed nearly 80% of central banks worldwide either lack the legal authority to issue digital currencies or operate within ambiguous legal parameters.
Cartsens is now calling for legal frameworks across countries, which would create a world where CBDCs could “flourish”.
Are CBDCs the future of money?
While recognising that the current monetary system, built on cash and commercial bank money, has “served society well”, Carstens said there is still need for evolution.
As cash usage declines and people increasingly seek new forms of digital money, the shortcomings of existing systems have become apparent. He argued there’s a growing demand for digital, programmable money that can facilitate quick, affordable, and secure cross-border transfers.
According to Cartsens, central banks hold the responsibility of meeting these demands and driving innovation in the financial sector, but collaboration with the private sector and other stakeholders is essential.
Global interest in CBDCs
Central banks worldwide have been actively exploring the technical and operational aspects of CBDCs. In 2022, a survey by the Committee on Payments and Market Infrastructures (CPMI) revealed that 93% of central banks were involved in CBDC-related work. More than half of them were running concrete experiments or pilot programs.
The BIS itself, an international financial institution, has conducted numerous CBDC experiments and called for countries to collaborate in designing their CBDCs.
A need for CBDC legal frameworks
Carstens emphasised that legal frameworks must evolve in step with CBDC development to unlock their full potential. He highlighted three core elements that these legal frameworks must preserve: privacy, financial system integrity, and user choice.
“These are fundamental issues and the legal framework for CBDC must get them right,” Carstens said.
Global conversation needed for CBDC interoperability
Carstens acknowledged that different legal systems, cultures, and traditions across jurisdictions would influence decisions regarding whether countries would issue CBDCs. While some countries are readily embracing a cashless society, others still rely heavily on cash transactions.
However, Carstens said international coordination and cooperation is still important. He warned against the risks of a fragmented system and legal framework that could hinder interoperability among different digital currencies.
He concluded his speech, stating: “By building a robust legal framework, we can all ensure that CBDCs will flourish.”