The Bank for International Settlements (BIS) defends in its Annual Report (pdf) published this June 26, the importance of central bank digital currencies (MNBC). According to her, MNBCs will be the cornerstone of tomorrow’s monetary systems to facilitate international transactions. The report points out that cryptocurrencies were a major contributor to the design of MNBCs, but beyond that inspiration, they are not as stable as fiat currency.
MNBCs are inspired by stablecoins
” Everything Cryptocurrencies Can Do, MNBCs Can Do Better said Hyun Song Shin, economic adviser and head of research at BIS, during a press conference on June 20. The report of the BIS, the bank of central banks, goes logically in this direction, highlighting the limits of cryptocurrencies. Decentralization is one of the dangers mentioned, it increases the risk of illegal transactions.
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To guarantee the stability of their value, MNBCs take over the operation of stablecoins. That is, a digital currency whose value is backed by another currency to guarantee its stability. This is the case of TerraUSD which recently saw its value collapse. This stablecoin is special because it is decentralized and aligns with the Luna cryptocurrency. Unfortunately, its value dropped when people figured out how to duplicate Luna. For Hyun Song Shin of BIS, this crash of TerraUSD illustrates the instability of cryptocurrencies.
However, other stablecoins like USDC and Tether are pegged directly to the value of the dollar and continue to hold for now. The BIS wants to draw inspiration from this operation to guarantee the stability of MNBCs. The report recognizes the technological advances made possible by cryptocurrencies that will help strengthen the monetary system of central banks.
A technology still in the experimental phase
Several countries already use MNBCs, such as China with its digital yuan. In study for several years, Beijing is at the forefront of this sector with 140 million people using it at the end of 2021. India is also in the process of developing its own MNBC, which could reverse the use again strong cash in the country.
France, the United Kingdom and Japan are carrying out experiments are carrying out several experiments over short periods to assess the interest of these digital currencies. In theory, they should allow fast and secure transactions, without intermediaries, as well as the transfer of money internationally without bank charges.
Yet central bank digital currencies are not without risk. As a centralized system, an MNBC exposes itself to the risk of computer attacks that could lead to significant losses. Nor can the democratization of MNBCs take place in a context of digital divide, that is to say inequalities of access and accessibility to digital technologies. L’Atlantic Council, an American international relations think tank, lists 109 MNBCs around the world. Only ten countries have fully embraced the use of a digital currency, such as Jamaica and Nigeria, where many people do not have access to a bank account. MNBCs are in the research and development phase in all European countries, still far from a complete change in the monetary system.