CBDC frameworks must prioritize user privacy and monetary freedom, says BIS chief

Legal frameworks crucial for successful CBDC adoption

According to Agustín Carstens, the head of the Bank of International Settlements (BIS), legal frameworks that protect user privacy and allow for the freedom to choose between central bank digital currencies (CBDCs) and other forms of money will play a key role in driving CBDC adoption. Speaking at the BIS Innovation Hub conference in Switzerland, Carstens emphasized the importance of legal authority for the legitimacy of a CBDC, stating that central banks need a solid legal foundation to issue digital currencies. However, an IMF paper revealed that nearly 80% of central banks are either prohibited or have unclear legal frameworks to issue a digital currency.

Outdated legal frameworks hinder CBDC deployment

Carstens highlighted that 93% of the world's central banks are actively developing CBDCs. Given the growing demand for digital fiat, Carstens argued that outdated or unclear legal frameworks should not impede the deployment of CBDCs. He emphasized the need for clearly defined rights and obligations within the framework of a CBDC to prevent potential misuse and ensure the integrity of the financial system.

User privacy and freedom of choice

Carstens identified three core elements essential for successful CBDC implementation: preserving user privacy and data, maintaining the integrity of the financial system, and upholding individuals' rights to choose between a CBDC and other forms of money. He acknowledged that different countries have varying trends in cash usage and digital payments adoption, suggesting that a retail CBDC could coexist alongside cash and commercial bank money.

Global development of CBDCs

China remains at the forefront of CBDC development, with its Digital Yuan CBDC program progressing rapidly. In the latest update to its pilot e-CNY app, tourists heading to China can now pre-charge their digital yuan wallets using Visa and Mastercard payments. Meanwhile, in the United States, the CBDC "Anti-Surveillance State Act" bill, which aims to prevent the Federal Reserve from issuing a CBDC, passed a vote in the House Financial Services Committee and will progress to Congress.