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- The BIS report states that central banks are not adequately prepared to address the risks associated with central bank digital currencies (CBDCs).
- The report underscores the impact on the business model of central banks and emphasizes the need for comprehensive risk identification, assessment, monitoring, and reporting processes for CBDCs.
Earlier this week on Wednesday, November 29, the Bank of International Settlements (BIS) published a report revealing that central banks aren’t ready enough to bring central bank digital currency (CBDC) to the market.
A consultative group established by the Bank for International Settlements emphasized in a report on Wednesday that central banks lack the necessary expertise to address the risks associated with central bank digital currencies (CBDCs).
The report suggests that central banks must enhance their capabilities and implement stronger measures to mitigate potential risks linked to the introduction of CBDCs. While countries globally are considering CBDCs to enhance payment efficiency and financial inclusion, the report highlights that the adoption of CBDCs could significantly impact the business model of central banks and pose various risks.
The BIS Consultative Group on Risk Management’s report underscores a significant risk associated with potential gaps in the internal capabilities and skills of central banks. The group, comprising central banks from Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States, urges central banks to establish comprehensive processes for identifying, assessing, monitoring, and reporting risks related to central bank digital currencies (CBDCs).
The report emphasizes that adopting advanced technologies such as distributed ledger technology, which underpins cryptocurrencies, demands not only a high level of expertise but also necessitates central banks to address technical challenges for which they may currently lack the necessary capabilities.
Conducting Thorough Risk Assessments
The BIS group suggests that central banks undertake thorough and practical evaluations of risks associated with central bank digital currencies (CBDCs). It advocates for the implementation of an integrated risk management framework, applicable throughout the entire lifecycle of a CBDC, starting from the research and design phases and extending to its operational deployment.
The report notes:
For CBDCs to be a reliable means of payments, central banks also need to address, among others, the risks of interruptions or disruptions and ensure integrity and confidentiality.
Despite initiatives to encourage the adoption of central bank digital currencies (CBDCs), countries implementing CBDCs are experiencing limited acceptance. The International Monetary Fund (IMF) cautions that a lack of consensus on CBDCs might contribute to a rise in cryptocurrency adoption.
However, some market players like Ripple are ready to provide the infrastructure support essential for CBDCs, Earlier this year, Ripple unveiled its own CBDC platform allowing central banks to quickly launch their CBDCs.
Mastercard joins forces with Ripple in its CBDC Partner Program, showcasing its dedication to strengthening connections in blockchain and digital payments. Ripple, recognized for its advancements in CBDCs, collaborates strategically with Mastercard to leverage expertise for efficient and beneficial global CBDC implementation.
