A report from the Bank for International Settlements, described as the "Bank of Central Banks" in the world, indicates a trend among central banks in several countries towards issuing their own sovereign digital currencies, making them directly available on mobile phones and allowing them to be exchanged instantly over long distances, much like email. However, Marcus Brunnermeier, director of the Bendheim Center for Finance at Princeton University and vice president of the American Finance Association, stated in an article published by the Financial Times that "to prepare for a world where we use digital cash in the form of central bank digital currencies, monetary authorities are currently exploring the technical solutions and design options for those currencies." He pointed out that there are four fundamental questions that require answers from legislative bodies and central banks around the world:
1. **Anonymity and Privacy**
Currently, within legally defined frameworks, individuals can spend a certain amount of money without anyone knowing. While it is technically possible to maintain such anonymity with central bank digital currencies, societies need to discuss many questions regarding privacy and the regulation of private tech companies involved in this field.
2. **Regulatory Concerns and the Form of Financial Intermediation**
By providing secure, easily accessible digital money, central banks could deprive private banks of their deposit bases and impact competition between banks and digital platforms. While these concerns are legitimate for banks and society, each can be addressed through the design of digital central bank currencies themselves and by adjusting liquidity provision methods.
3. **The Need to Embrace Innovation**
The rationale for central bank digital currencies is to continue supplying the economy with public money in this new environment. To do so, central banks must catch up with the wave of innovation launched by private sector money issuers and ensure that new forms of private money are safe and trustworthy. It's also crucial that future regulatory frameworks do not hinder innovation in payments that benefit everyone.
4. **Addressing Currency Internationalization Concerns**
Digital money is, by nature, cross-border and will expose countries to increasing competition. This could lead to the establishment of "digital currency zones," where the use of currency is linked to specific digital networks rather than particular countries. The extent of this competition will depend on whether central bank digital currencies in the future are accessible to non-residents and can be easily exchanged.
**A New Front**
Marcus Brunnermeier commented that the entry of several central banks worldwide into the realm of digital money represents an exciting and new front in finance. However, by answering the posed questions, governments can ensure that participants everywhere benefit from the era of innovation.
