The Bank of International Settlements is working with the central bank of Switzerland to develop a CBDC proof of concept as it scrambles to get out a pilot project by the year’s end.

In brief

  • The Bank of International Settlements is piloting CBDCs.
  • It is working with the central bank of Switzerland to develop a proof of concept by the end of the year.
  • The majority of the world’s central banks are now researching digital currency.
  • CBDCs could change the behavioural-economic rule book entirely if widely adopted.

An executive at the Bank for International Settlements, which comprises most of the world’s largest central banks, announced that the BIS is working on a central bank digital currency pilot with Switzerland’s central bank. 
“By the end of this year, we plan to publish our first wholesale CBDC proof-of-concept with the Swiss central bank,” said Benoît Cœuré, head of the BIS’s Innovation Hub, in a speech at the Shanghai Bund Summit (Cœuré dialed in).
Wholesale CBDCs are centrally controlled digital currencies held by national banks. The narrative is that such currencies will facilitate cheaper transactions, but the trade-offs remain unclear as yet. However, a detailed analysis on what could be expected from CBDCs can be found here.
Central bank digital currencies are entirely different from cryptocurrencies, so much so that they are not decentralised in any way and do not rely on consensus or publicly verifiable blockchains. They are very loosely inspired by distributed ledger technology and 80% of the world’s central banks are looking into developing them further.
“Looking ahead, we plan to build on central banks’ experience with [the] cross-border use of CBDC, including with the [Hong Kong Monetary Authority] and the Bank of Thailand, the Monetary Authority of Singapore and with the Swiss National Bank,” said Cœuré.
Cœuré said that this work will “pave the way” for retail versions of CBDCs—aka, digital cash, and inform other central banks’ design for CBDCs, and help work out how CBDCs would interact and work with each other. 
“This complex technical work is above all directed to practical solutions, rather than conceptual research of recent years,” he said. 
Cœuré noted that China is leading the way with its own CBDC, a digital yuan, which is on the cusp of being released. “Through collaboration, we can learn.” 
Of course, Cœuré didn’t mention the highly disconcerting trade-offs that such technology will have on markets and economies. The unprecedented and never-seen-before control central bankers will have over these CBDCs could change behavioural economics itself if widely adopted.

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