Central Banks Aren’t Sufficiently Ready for CBDC Risks: BIS Report

A report published by the Bank for International Settlements (BIS) has found that central banks are not adequately prepared for the risks associated with central bank digital currencies (CBDCs). The report calls for more research and testing before CBDCs are widely adopted.

The Report’s Findings

The BIS report, titled “Central bank digital currencies: financial stability implications,” identified a number of risks associated with CBDCs, including:

• Financial stability risks: CBDCs could potentially lead to runs on banks, as depositors may switch to CBDCs perceived as being safer.
• Cybersecurity risks: CBDCs could be a target for cyberattacks, which could disrupt the financial system.
• Privacy risks: CBDCs could be used to track individuals’ financial transactions, which could raise privacy concerns.
• Operational risks: CBDCs would require new infrastructure and systems, which could be vulnerable to disruptions.

The report also found that central banks are not fully aware of the risks associated with CBDCs. The report states that “central banks need to do more to assess the potential risks of CBDCs and develop appropriate mitigation strategies.”

The BIS’s Recommendations

The BIS has made a number of recommendations to central banks, including:

• Conduct more research on the risks of CBDCs. This research should include quantitative and qualitative analysis.
• Develop and test CBDC prototypes. This will help to identify and mitigate potential risks.
• Engage with stakeholders. This includes banks, financial institutions, and the public.

The Implications of the Report

The BIS report is a significant development in the CBDC debate. It is likely to make central banks more cautious about adopting CBDCs. The report may also lead to more international cooperation on CBDC risk management.

The Future of CBDCs

Despite the risks, CBDCs have the potential to offer a number of benefits, including:

• Financial inclusion: CBDCs could provide access to financial services to people who are currently unbanked or underbanked.
• Financial efficiency: CBDCs could reduce the cost of financial transactions and make payments faster and more secure.
• Financial innovation: CBDCs could foster new financial products and services.

Central banks are still exploring the potential of CBDCs. However, the BIS report suggests that central banks need to do more work before CBDCs can be widely adopted.

Additional Points

• The BIS report is based on a survey of 81 central banks.
• The report is the first major study of CBDC risks by an international organization.
• The report is likely to influence the development of CBDC policies around the world.

The BIS report is a timely reminder that central banks need to carefully consider the risks and benefits of CBDCs before rushing into widespread adoption. While CBDCs have the potential to offer a number of benefits, they also pose significant risks that need to be mitigated. Central banks should continue to conduct research and testing on CBDCs, and they should engage with stakeholders to develop a coordinated approach to CBDC risk management.