Governance, legal ambiguity key hurdles for central bank digital currency projects: BIS chief

Bomi Yoon

Agustin Carstens, general manager of the Bank for International Settlements, delivers a speech on central bank digital currency projects at the Bank of Korea’s headquarters in Seoul, Nov. 23. Yonhap

The chief of the Bank for International Settlements (BIS) said Thursday that governance and legal ambiguity should be solved on top of technical infrastructure advances for a step toward central bank digital currency projects.

Many countries, including Korea, have launched so-called central bank digital currency (CBDC) pilot programs as part of efforts to keep up with changes in the financial system and features in the digital currency market.

“Public authorities need to take the lead here. Central banks should move fast to develop programmable wholesale CBDCs … governments have a role to play by promoting the tokenisation of as many asset classes as possible,” BIS General Manager Agustin Carstens said in a forum here hosted by the Bank of Korea (BOK).

He said many countries also should clear governance and legal challenges.

“In some jurisdictions, in most countries, the law constrains what central banks can issue as money, and evidence suggests current legal frameworks either do not allow CBDC issuance, or at best are unclear about it. This is why we need to get the legal framework right for CBDCs, and for tokenised systems more broadly,” said Carstens, according to a transcript of his speech released by the BOK.

Carstens went on to say that the governance question of how to bring money and non-money claims onto a single programmable platform is equally important, stressing that different assets should reside on the same unified ledger, so that they can be embedded in contracts that execute complex transactions.

In October, the Bank of Korea and financial regulators unveiled a plan to conduct a joint test on the feasibility of CBDC in financial transactions.

Since August 2021, the BOK has launched the mock test of a CBDC for inter-financial institution transactions.

The BOK, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) will expand the feasibility test to the realm of transfers and settlements among financial institutions based on a token that it said is not a virtual coin by the end of next year.

“The project brings together the Bank of Korea with the other key regulatory bodies in Korea, the Financial Services Commission and the Financial Supervisory Service. Other government agencies have been consulted and are on board … This type of cooperative approach is crucial if a vision like a unified ledger is to be realized,” he said. (Yonhap)

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