Major central banks are looking at the case for issuing their own digital currencies, the Bank of England and European Central Bank said on Tuesday, amid a growing debate over the future of money and who controls it.
The central banks of Britain, the euro zone, Japan, Sweden and Switzerland will share experiences in a new group headed by former European Central Bank official Benoit Coeure and assisted by the Bank of International Settlements, they said.
“The group will assess ... economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies,” the central banks said in a statement.
The U.S. Federal Reserve was notably absent from the group.
Central banks across the world have quickened the pace with which they are looking at issuing their own digital currencies, also known as CBDCs. Facebook’s push to launch its Libra cryptocurrency has added fuel to questions over whether nation states will continue to control money in the decades ahead.
Of the major central banks, China’s has emerged as the front-runner in the drive to create its own digitized money, though details of its project are still scarce.
In the United States, Fed Chairman Jerome Powell said in November it was monitoring the digital currency debate but not actively considering its own amid a host of legal, regulatory and operational questions.
But Philadelphia Federal Reserve bank president Patrick Harker said a month earlier it was “inevitable” that central banks, including the Fed, would start issuing digital currency.
Harker cautioned that the United States should not be the nation to lead such a move.
The Fed did not immediately respond to a request for comment on Tuesday.
THE COMMON DENOMINATOR?
CBDCs are traditional money, but in digital form, issued and governed by a country’s central bank. By contrast, cryptocurrencies such as bitcoin are produced by solving complex maths puzzles, and governed by disparate online communities instead of a centralized body.
The common denominator is that cryptocurrencies and CBDCs, to a varying degree, are based on blockchain technology, a digital ledger that allows transactions to be recorded and accessed in real time by multiple parties.
Last year BOE Governor Mark Carney took aim at the U.S. dollar’s “destabilizing” role in the world economy and said central banks might need to join together to create their own replacement reserve currency.
The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.
Facebook’s Libra is the most high-profile proposed digital currency to date but it faces a host of fundamental issues that it has yet to address, he added.