The G7 has published a set of public policy principles for retail central bank digital currencies (CBDCs), along with a statement from the G7 Finance Ministers and Central Bank Governors CBDCs and digital payments. The public policy principles for retail CBDCs set out a common set of considerations on the public policy implications of CBDC, reflecting the shared and enduring values of the G7 on transparency, the rule of law, and sound economic governance. The principles are divided into the categories of foundational issues and opportunities. The foundational issues cover monetary and financial stability, legal and governance frameworks, data privacy, competition, operational resilience and cybersecurity, illicit finance, spillovers, and energy and environment. Principles in the opportunities category focus on supporting digital economy and innovation; financial inclusion, payments to and from the public sector, cross-border functionality, and international development.
The following are the public-policy principles set out by the G7:
- Monetary and financial stability. Any CBDC should be designed such that it supports the fulfillment of public policy objectives, does not impede the central bank’s ability to fulfill its mandate and ‘does no harm’ to monetary and financial stability.
- Legal and governance frameworks. G7 values for the International Monetary and Financial System should guide the design and operation of any CBDC, namely observance of the rule of law, sound economic governance and appropriate transparency.
- Data privacy. Rigorous standards of privacy, accountability for the protection of users’ data, and transparency on how information will be secured and used is essential for any CBDC to command trust and confidence. The rule of law in each jurisdiction establishes and underpins such considerations.
- Operational Resilience and Cyber Security. To achieve trusted, durable, and adaptable digital payments, any CBDC ecosystem must be secure and resilient to cyber, fraud, and other operational risks.
- Competition. CBDCs should coexist with existing means of payment and should operate in an open, secure, resilient, transparent, and competitive environment that promotes choice and diversity in payment options.
- Illicit finance. Any CBDC needs to carefully integrate the need for faster, more accessible, safer and cheaper payments with a commitment to mitigate their use in facilitating crime.
- Spillovers. CBDCs should be designed to avoid risks of harm to the international monetary and financial system, including the monetary sovereignty and financial stability of other countries.
- Energy and Environment. The energy usage of any CBDC infrastructure should be as efficient as possible to support the international community’s shared commitments to transition to a "net zero" economy.
- Digital economy and innovation. CBDCs should support and be a catalyst for responsible innovation in the digital economy and ensure interoperability with existing and future payments solutions.
- Financial inclusion. Authorities should consider the role of CBDCs in contributing to financial inclusion. CBDC should not impede, and where possible should enhance, access to payment services for those excluded from or underserved by the existing financial system, while also complementing the important role that will continue to be played by cash.
- Payments to and from the public sector. Any CBDC, where used to support payments between authorities and the public, should do so in a fast, inexpensive, transparent, inclusive, and safe manner, both in normal times and in times of crisis.
- Cross-border functionality. Jurisdictions considering issuing CBDCs should explore how they might enhance cross-border payments, including through central banks and other organizations working openly and collaboratively to consider the international dimensions of CBDC design.
- International development. Any CBDC deployed for the provision of international development assistance should safeguard key public policies of the issuing and recipient countries, while providing sufficient transparency about the nature of the CBDC's design features.
These principles for retail CBDCs should support and inform policy deliberations in response to a new wave of innovation in money and payments and will be useful to jurisdictions and international organizations considering CBDC, in the G7 and beyond. The G7 statement also discusses the concept of dependencies that may be encountered in designing a retail CBDC ecosystem; for example, interactions between protecting user privacy and countering illicit finance. The statement seeks to highlight some of the design choices that these dependencies might imply and offers some considerations on how to approach these complex issues, while recognizing that it is for national authorities to consider how best to balance them.
Keywords: International, Banking, CBDC, Digital Currencies, Policy Principles, Operational Risk, G7, Cyber Risk, Regtech, HM Treasury
Previous ArticleEBA Note Examines Transition Risks of Benchmark Rates
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
The European Banking Authority (EBA) Single Rulebook Question and Answer (Q&A) tool updates for this month include answers to 10 questions.
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.