BIS Report: Central Banks Unprepared for CBDC Risks

• Central Banks Must Improve Skills to Manage Digital Currency Risks, Says BIS Group
• Implications of CBDCs on Central Banks
• Potential Risks and Required Measures
• Maintaining Reliability of CBDCs
• Recommendations for Risk Management

Central Banks Must Improve Skills to Manage Digital Currency Risks, Says BIS Group

The Bank for International Settlements (BIS) Consultative Group on Risk Management stated in a recent report that central banks worldwide need to amplify their measures and upgrade their expertise to handle the potential risks associated with Central Bank Digital Currency (CBDC).

Implications of CBDCs on Central Banks

Countries globally are contemplating the issuance of CBDCs as a means to enhance financial inclusion and improve payment efficiency. However, the inauguration of CBDCs may lead to significant repercussions on the operational blueprint of central banks and may give rise to various risks, according to the report.

Potential Risks and Required Measures

The report highlights a major risk being the possible gaps in central banks' internal capabilities and skills. The BIS Consultative Group, which comprises representatives from the central banks of Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States, urges central banks to institute procedures to identify, assess, monitor, and report CBDC-related risks.

Furthermore, the deployment of advanced technologies such as distributed ledger technology, the backbone of cryptocurrencies, will not only necessitate expertise but will also compel central banks to resolve technical issues that they may be unprepared for.

Maintaining Reliability of CBDCs

The report emphasized that for CBDCs to serve as a reliable payment method, central banks must address the risks of disruptions or interruptions and ensure the integrity and confidentiality of transactions.

Recommendations for Risk Management

The BIS group advocated for central banks to execute comprehensive and realistic evaluations of risks and suggested an integrated risk-management framework applicable from the research and design stages to the operation of a CBDC.

Edited by Jonathan Stoker