BIS Identifies Three Key Factors as Challenges of Wholesale CBDC

The Central Bank Digital Currency (CBDC) project of the Bank for International Settlements (BIS) generates more questions than answers as the international banking institution weighs in the technical and governance challenges that embody the attempt to create a multi-platform CBDC product.

The BIS identifies a multi-CBDC platform as a viable option that can aid the easy interoperability amongst a wide range of central banks. The bank noted that “On a multi-CBDC common platform, each participating central bank issues its own CBDC in its own domestic currency. Participating commercial banks are then able to hold these CBDCs directly, gaining access to foreign currencies without the need for accounts with correspondent banks.”

While this model will aid foreign exchanges transactions to a great extent, the BIS has identified “access” to the multi-CBDC platform by “nonresident banks, i.e, banks which do not have a local presence and are not authorised to operate or provide domestic financial services – can be trusted to access and make payments with CBDCs when they do not have a presence in those jurisdictions?”

The identified critical challenges to the emergence of a global multi-CBDC platform also extend to the differences in “jurisdictional boundaries” and “governance” provisions amongst countries. 

In the face of these challenges, the BIS is still motivated to help champion the emergence of “a global network of connected CBDC platforms and interoperable CBDCs.” To achieve this, the BIS will foster the development of technical capabilities and testing at a large scale level, a platform rulebook for the multi-CBDC platform, and the legal and regulatory frameworks in all participating countries would need to be reviewed.

Currently, over 110 countries are actively at one stage or the other in their CBDC development process, and more are poised to join the trend. With the need to create an avenue for international and cross-border settlements with the new forms of legal tender, the BIS will not be deterred by these challenges and continue working with its partner countries to address the unknown questions that may cause a stump the noble cause.