The Bank of International Settlements (BIS) recently published its new annual economic report. In the report, it was shown that approximately 90% of central banks across the globe are looking at the potential of adopting a central bank digital currency (CBDC) into its financial operations, along with the traditional economic systems.
In its report, the BIS points out how current traditional finance (and fiat currencies) are able to offer stability, in contrast to cryptocurrencies which are know for their volatile nature. However, as a digital currency backed by a nation’s currency, a CBDC is able to offer relative price stability along with other perks that come from digital currencies.
“Scaling on the back of network effects, central bank digital currencies (CBDCs) and retail fast payment systems (FPS) are well placed to serve the public interest through greater convenience and lower costs, while maintaining the system’s integrity.”
Additionally, the report stated that the way cryptocurrencies are designed, borderless payments and massive decentralised finance potential is available to work hand-in-hand with a country’s traditional finance as a result of implementing CBDCs.
“These innovative payment rails are fully compatible with programmability, composability and tokenisation to support faster, safer and cheaper payments and settlement, both within and across borders. In this way, the future monetary system will be adaptable, allowing private sector innovation to flourish while avoiding the drawbacks of crypto. Such initiatives could open up a new chapter in the global monetary system.”
The BIS also noted the main purpose and functionality of a monetary system, as an approach to payments and money. A monetary system, according to the BIS, needs to fulfil three functions:
- As a store of value,
- A unit of account, and
- A medium of exchange.
Laying out the features and functions of cryptocurrency, the BIS sees the digital currency industry along with traditional finance working together to offer an efficient, inclusive, adaptable system that will benefit both the country and the users.