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 European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.