The head of the Bank for International Settlements (BIS), Agustín Carstens, believes central bank digital currencies (CBDCs) play a key role in the new digital age.
He called them ‘central’ to innovating financial systems in a speech that was given at the conference “Securing the future monetary system: cyber security for central bank digital currencies”, today in Basel, Switzerland.
Carstens started off by highlighting the impact of the ongoing digital revolution on the financial sector. The public expects financial services to match the convenience and functionality of digital services in other areas of life.
Here, CBDCs are seen as pivotal in the transformation of the financial system, with potential roles in both wholesale (digital central bank reserves) and retail (digital banknotes) capacities. In saying this, Carstens emphasised security and innovation as cornerstones for the development of these digital currencies:
“To fulfil this role, CBDCs will need to meet several requirements, such as a user-friendly and versatile technical design and a robust legal framework. Above all, they must be secure – and be seen to be so.”
In entering this new phase of revolution, security should be prioritised in order to maintain public trust in the financial system. Carstens believes that the transition to digital central bank money would come with new technological challenges and cyber threats. Therefore, there is a need for flexible security solutions adaptable to various potential CBDC designs and architectures.
He acknowledged the dual nature of technological innovation, which can lead to more efficient services but also opens doors to criminal activities, as evidenced by security breaches in the cryptocurrency space.
While pointing out the security challenges in handling CBDCs, Carstens also noted that “it will be crucial not to ignore other design objectives”, such as maintaining an appropriate level of privacy to ensure public acceptance, especially in retail CBDCs.
The speech laid out the private sector’s role in the future financial system where there would be a dire need for cyber resilience. The BIS head strongly advocated for collaboration between the private and public sectors saying: “Most customer-facing services will remain in the private sector’s remit. Cyber resilience among these institutions will also be crucial to maintaining trust in the system as a whole. Indeed, it is probably reasonable to think of cyber security and resilience as public goods among connected institutions. If your institution is safer, so is mine. And this activity does not need to be done by individual organisations in isolation – we can share knowledge. In fact, collaboration between the private and public sectors is key to manage existing and emerging cyber threats.”
Carstens then wrapped up by assuring a continued effort from the side of BIS to support the development and implementation of CBDCs. It will seek to help central banks in examining how to make these digital currencies more secure, by integrating quantum-resistant cryptography, as well as ensuring cyber resilience.
The BIS is committed to supporting central banks by leading efforts through its Innovation Hub and Cyber Resilience Coordination Centre, said the top chief. They have been working on projects to enhance the security of CBDCs and foster collaboration and knowledge-sharing among central banks.
Established in 1930, the BIS is owned by 63 central banks, representing countries from around the world that together account for about 95% of world GDP. Various central banks around the world are exploring issuing digital versions of sovereign currencies under the group’s recommendation.
