BIS Media Briefing 23 June 2020 - Central banks and payments in the digital era

Hyun Song Shin, Economic Adviser and Head of Research, and Benoît Coeuré, Head of BIS Innovation Hub

BIS speech  | 
23 June 2020

Shin and Cœuré brief the media on the main messages of the special chapter of the Annual Economic Report.


Hyun Song Shin:

Welcome, everyone, and thank you for joining this press briefing on the special chapter on central banks and payments in the digital era.

Just by way of background, this chapter in some ways follows in the footsteps of the chapters in the previous two years on cryptocurrencies and big techs in finance where we looked into what digital innovation meant for the nature of money and the payment system.

There was also a strong technology focus this year, but the focus is a little bit broader. We're asking what is the role of the central bank in ensuring a fast, efficient, and cost-effective payment system.

The main message is that technology will be a very important enabling factor in the central bank playing that role, but the questions are much broader in that we have to take account of the underlying economics in the nature of competition in the payment service industry.

Benoît Cœuré:

Good afternoon, everyone. I'll be happy to help or answer your questions on Chapter III. I'll also explain how the BIS Innovation Hub can help to achieve the objectives laid out in the report.

Can you start with saying when you expect a CBDC to be issued by a bank? How far away is all this, and second thing, do you expect the kind of digitalisation of cash payment seen through the COVID to be retained or do you think some will go back to actual cash?

Benoît Cœuré:

On CBDC, I think it's fair to say that we've seen an acceleration of the momentum toward CBDC and a stepped-up interest by central banks around the world. It started some years ago with China and Sweden starting looking into it. Libra was, as we often say, was the wake-up call for the global community and also an acceleration.

We are now seeing an increasing number of central banks in advanced economies looking into CBDC while the initial focus was more by central banks in emerging markets and developing economies. The virus, COVID, has certainly caused further acceleration in terms of digitalisation.

When are we going to see CBDC? I can't answer that question because that's for each and every central bank to decide on how fast they want to go. I can tell you that first we are seeing the regulatory ascent and acceleration, and second, we are seeing lots of commitment to go down this journey together, that is to explore the challenges and opportunities and maybe study some of the technical aspects jointly in the central banks community and the BIS, of course, will be there for support.

I was just wondering also on the box about payments and digital currencies, the increasing use of digital during the pandemic and how the people who don't have bank accounts risk being excluded. I think the question was do you see these trends continuing after the crisis or as life, hopefully, normalises, do you see them returning back to the way things were?

My other question was you warn that some people, the unbanked or underbanked, could be shut out of services, and basically this is a source of rising inequality. I was just wondering... and then you say that there are initiatives. I mean, what should be done about this? You kind of cite the problem but not really a solution. I was wondering what you think could be done.

Hyun Song Shin:

On what we've seen during the pandemic, as we say in the chapter, we do see some trends that were already in place getting a further impetus during the pandemic. One example, as you noted, is the use of contactless payments. These are, when you go into a shop and you have your card with you, it's technically a card-present transaction. Normally, you would put it into the machine and punch your PIN number, but we now have the contactless in a payment method with your card.

What we're seeing is that was already trending up coming into the pandemic, but it's got a further boost during the pandemic. You'll see the numbers in the Chapter.

The other thing that we see that was already in place but may perhaps receive a further boost is the declining use of cash for transactions certainly, although we also see the holding of cash for precautionary motives going up. That's very typical of times of uncertainty, and that's certain something that we would be able to classify as being something very normal under these circumstances. That's what we see during the pandemic. The other question you asked was on what can be done to enhance financial inclusion. I think this is a very important theme, especially this time. One other aspect where the financial inclusion and the current conjuncture actually overlap is the direct transfers that are made to individuals and to small businesses. Governments have put in place very large fiscal programmes during the crisis, advanced economies of the order to 10% of GDP, and then there were the guarantees on top. I think what we're seeing is that those jurisdictions where the disbursement can be made directly in a speedy way without operational risks along the way, I think are the jurisdictions where the help can be provided in a very expeditious way, very effective targeted way.

I think this is where the payment system really does come into its own because if you have a fast payment system that is widely accessible, you can make those payments very effectively and in a timely way.

As you know, the Swiss authorities have done a very good job in that respect. The Swiss disbursement has been very effective.

What can we do to enhance? I think if you read the chapter, we go through the standard arguments. I think this is where the point about this being more than just the technology becomes very important because the technology has been on a continuous upward trend in terms of sophistication and effectiveness, but as we say in the chapter, you have to tackle the underlying economics as well.

If the market itself suffers from imperfect competition, market concentration, distorted incentives, and so on, we may not be able to reach those most in need. 

What has been your feedback about China's trials in those four or five cities that they've sort of launched this digital currency, and also whether you see that the use of digital currency as a way to internationalise currency by those who cannot compete with the dollar, those who are not seeking to sort of displace the dollar, but then in terms of for use in bilateral trades and situations like with in a bloc, like belt and road or any other sort of trade bloc where you might want to use the digital currency and do away with the reserve currency as a reference point?

Benoît Cœuré:

That's a really important question we are following very closely and with a lot of interest what PBOC is doing in this series. China clearly has been blazing the trail when it comes to CBDC, and later whatever they do will bring lots of lessons for the other central banks who are following it. Let me say that we have a very good relationship and close relationship with the People's Bank of China, and they're really part of the collective effort.

It's too early to tell what the experience will yield. It's clearly an experiment. It shows that whoever wants to go down the route of CDBC will have to do it in a very methodical and sequential way. That's also an important lesson that we learned from China, that you've got to do it step by step. That's not a journey where you can rush. We learned from this experience.

When it comes to the international dimension of CBDC, I think that's not really what we're discussing today. Most central banks have a domestic focus. The Chinese experiment clearly has a domestic focus. Whenever that international dimension will be discussed, we'll need a great deal of coordination because we want CBDCs, whenever they happen, to be consistent and to be interoperable. We don't want CBDC to be an additional cause of fragmentation in the international monetary and financial system.

That's an area where the BIS will have a role to play. That's, as a matter of fact, one of the third practical areas which the BIS Innovation Hub want to investigate and experiment with, everything related to the indications of CBDC, the kind of international standard that we might need to make it work, and the way to make CBDC interoperable.

As I said, we are not very far down that road. I would see most, if not all, CBDC experiments today to be largely focused on domestic progress.

Hyun Song Shin:

If I can just refer you to graph III.10 on page 88, which is the result of a survey that we conducted last year on the various motivations for central banks working on CBDCs. You'll see that it's mostly about the safety and efficiency of the domestic payment system that seems to figure most, as well as financial inclusion.

There isn't a kind of definitive, official account of what the China CBDC is, how it's designed and so on, but we know from other official pronouncements that it is mainly for domestic purposes. It is a central bank liability which is distributed by the commercial banks in China. It is primarily a domestic instrument.

I think the international dimension does get a lot of coverage, but I think for the moment, it seems to be slightly at variance with what we know in terms of the actual design features and the uses. 

In the chapter, I found it interesting that there's a lot of comments about competition issues, and you point out that with the rise of the new digital payment platforms, some of those new platforms threaten to achieve, or maybe already have achieved, a dominant position in payments, and then at the end of the chapter, you say that issues of competition policy and data privacy are still handled primarily at the national level.

And so my question is what tools are needed either for the BIS or other international bodies to address these questions of competition policy at the global level? Because clearly the rise of the big techs is getting more and more evident, and they may already have reached the dominant position in payments.

Hyun Song Shin:

The first thing to say is that the BIS doesn't have any particular formal role in supervision or the regulation of payments. We are a facilitator of discussions among central banks and other official institutions through, for example, the Committee on Payments and Market Infrastructures, and also through the Innovation Hub.

So I think the main point to take away is that the various economic considerations we outlined in the chapter are fairly general ones and they apply to other markets as well as the payments. But in payments, as we explain, it's a market that has very strong network effects, where the more users flock to a particular platform, the greater is the incentive for any other individual to use that platform. And we explored some of the issues in the special chapter last year on big techs entry into finance.

What we argue in the chapter is that technology and network effects bring a lot of benefits because there is the potential for this virtual circle of greater participation, lower costs, and better services. But it also has this other side of the possibility of market dominance that come from the so-called tipping effects, where you have one platform that achieves this critical mass and then possibly acquire market power through that.

As we say in the chapter, one very important way that you can achieve the efficiency of payments, lower cost, as well as guard against the possible tipping effects is for the central bank to play a much more effective role. And here the central bank as an operator of the infrastructure takes on a lot of meaning because the central bank, after all, is the issuer of money, which is the unit of account in the economy. And it ensures the finality of payments in a settlement on the central bank's balance sheet. So in that respect, the central bank has a very important role to play as an operator, or as the foundation for other private sector operators to build on top.

And so, we go through this argument in some detail in the chapter where, both for technical reasons, I should say technological reasons, as well as for the underlying competition economics, the idea of a public space that is in the form of the central bank balance sheet, and allowing private sector payment service providers to settle on the central bank, is a very desirable goal to aim for. And I think this is something that we have seen in many central banks around the world, in many countries, both advanced and developing, where we see a very rapid adoption of fast payment retail systems, retail fast payment systems, where the cost of payments has fallen quite dramatically.

Benoît Cœuré:

Let me just add a very short word on competition and efficiency of payments. And the fact is that this also ties in with the discussion on development and other inequalities. If you go into the report, you have a very interesting chart - 3.2 on page nine -  which tells you a very simple thing, which is that there is a direct relation between the market power of the banking industry in a given country and the cost of payments. That is, the higher the margin of banks, the higher the interest margin of banks in particular, the more expensive payments are.

And when you dig into it, you see that actually at both ends of that chart, you have on the one hand, advanced economies with cheaper payments. And on the other hand, you have developing economies, emerging market economies, with more expensive payments. And Latin America is a case in point here.

And so that issue of efficiency, competition, and how to make payments less expensive is particularly important in developing economies, which makes it a key hurdle that you want to lift to support development, to reduce inequality, and also to support financial inclusion. So that discussion is even more important in the developing world than it is in advanced economies.

It's about the poorest countries in Latin America. You wrote the poorest country suffered the most from the payment system. And how can these markets be encouraged to move forward since they are most in need? And the second question. Mr Cœuré said there'd be currencies isolating in advanced countries, and less in emerging countries. Do you know what the situation is in Brazil?

Hyun Song Shin:

I think, as we've seen during the COVID pandemic, the pandemic has been really a very big shock because it combines a health crisis with an economic sudden stop. And then there was also this financial crisis as well, which added to the economic costs.

In some respects, the pandemic has been a stress test for a lot of the systems in the economy. But I think the payment system has come through quite well, in the sense that the payment system has been one of the more resilient parts of the financial system, as compared to the capital outflows during the most acute periods of financial stress, and the sharp economic downturn. The payment system has worked really quite well. And we saw that even during the height of the stress, there were no real episodes of the payment system itself seizing up. So I think that's one point that's certainly worth making, both in advanced and in developing economies.

On developing economies specifically, there are some institutional challenges that have to be surmounted. But I think there are some good lessons to be had out there. And to some extent, the fact that in some ways you're starting from a situation where the existing, if you like, legacy systems are not in place, that actually helps.

And we spent some time in the chapter discussing the experience of India, which has managed to put in place, quite a sophisticated system in a relatively short time. And it builds on several pieces. One very important piece is the digital identity systems they have, called Aadhaar. And then on top of that, you can build a very good instance of the central bank-based interoperable retail payment system that I was speaking about earlier, something which I think that the Indian authorities have managed to build up, and which is quite a good model for other countries. There are always issues about the scope and the reach, but I think in several respects, I think it's been a great success. And I think some of the principles can be taken to other countries as well.

I know less about the specific case of Brazil. But Brazil is one of those countries that has taken very important steps recently to bring in a faster retail payment system. It's called Pix. And it's quite comparable to a very similar system in Mexico called Codi. And these are very good examples of the kind of fast payment systems that I was referring to earlier, where these are payments used by retail users that settle on the central bank balance sheet through the RPGS system. And it actually helps to level the competitive playing field, and actually remedy some of the competitive imperfections that can give rise to higher costs for more disadvantaged users and so on. And I think, yes. Good. 

How much are different central banks talking to each other about their initiatives. Is there some sense they might be competing against each other? Is there a benefit for a central bank in its country to be first or best or different when it comes to developing these things? I know that some collaborations are ready. And where do these fall either side of geopolitical faultiness, given everything that's going on at the moment?

Benoît Cœuré:

I don't think it is a competitive issue. I don't see it as a race. There's no race to get to CBDC. The main reason being that most projects are domestically focused. So it doesn't make much sense to race because you're the master of your own currency. And at the end of the day, it's also a political decision, that you don't want to take a loan as a central bank. So there are a lot of technical issues, regulatory issues, issues of financial stability. How is that going to impact on your financial system, which you want to solve and sort out as a central bank. But in the end, the decision to go for a CBDC is also a political decision, and it's domestic in essence. It's something you want to discuss with your government and with your parliament.

So what I see is a great deal of international collaboration in different places. In the first place, I guess Shin mentioned it earlier, was the Committee on Payment and Market Infrastructures, which issued the first report on CBDC back in the spring of 2018. So, that was before Libra and before the pandemic. We felt that we had to get together and then put our heads together to reflect on the challenges and opportunities of CBDC.

You also have an international group, which I co-chair with Sir Jon Cunliffe, the deputy governor of the Bank of England, with a number of central banks, ECB, Bank of Finland, Swiss National Bank, Sweden's Riksbank, Bank of Japan, Bank of Canada, and also the Fed, who are working on the pros and cons of CBDC, and identifying avenues for future work, in particular in the technical field. And finally, the Innovation Hub, which I'm in charge of here at the BIS is also contributing to shed light on some aspects, some technical aspects of CBDC.

So in short, I see a lot of exchange and a lot of collaboration around CBDC. It is not a geopolitical state, yet. Might become one, but at this stage we just want to learn from what the others are doing and to have a shared analysis and diagnosis of the pros and cons before we move further. 

I was wondering whether you'd have any comment on Wirecard in Germany, and whether this scandal was the reason for you to look more deeply into the transparency of the sector and the systemic risk it may pose to the system?

Hyun Song Shin:

I'm not sure that we have anything particular to add to the Wirecard issue. We have the recent reports, but I think this is not really something that we have much to say on.

In the report, in the chapter you mentioned that there's a projected 20% decline in global remittances this year thanks to the situation with the pandemic. And I was wondering what such a dramatic decline in remittances would mean for the global payments sector and for the global payments system? And my second question is, is there any dialogue going on at the moment between regulators or even at the business or at an industry level about how the question of very opaque remittances can be tackled, but also the question of the extremely high cost of remittances? But the latter part of that question, I think you've slightly touched on that earlier with the cost of payments in developing countries. But I was just wondering specifically if there'd been any dialogue about remittances.

Hyun Song Shin:

So the first part of your question is the impact on the global economy that comes from the fall in remittances, and then the follow-up was the broader question on how to tackle the various impediments on remittances, especially of migrant workers, presumably, and the impact on the global economy there. I think the fall in remittances this year, that is in part due to the economic downturn and also the various restrictions on travel and other decline in mobility that have really combined to create the perfect storm. So it's a reflection of the downturn in global economic activity, I would say. On remittances more generally, you may know that the G20 has a special initiative this year under the Saudi presidency of the G20, which has tasked the FSB, the Financial Stability Board, to coordinate a study on how to improve and how to make more efficient and cost effective cross border payments, especially remittances.

And the BIS is part of that study through the CPMI and with the member of central banks, and we've just completed the first part of that study, which was delivered to the G20 in April. We're now into the so called second phase of that study and we are making very good progress on that. I think what will be found is that the problem with remittances and cross border payments more generally isn't down to any one problem, but a combination. Some of it is technical, some of it is the absence of common standards, and something as trivial sounding as different business hours across jurisdictions can also be an issue. Now, I think the best person to answer this question is actually Benoît, who was the chair of the CPMI and who is deeply familiar with this issue.

Benoît Cœuré:

It's a very important question and I think it's fair to say and to acknowledge that making remittances cheaper has been a major failure of the global community. I think many of us are old enough to remember a number of G7 initiatives on remittances which didn't bring much, to be honest. What the G7 and the G20 didn't achieve by themselves, technology is now achieving. It puts so much pressure on the incumbent technologies and incumbent value chains, that something has to change. If you take Libra, for instance, I think the proponents, the sponsors of Libra themselves, have said that the main business case is with our cross border payments because that's where the cost advantages are and the speed advantage is easiest to reap.

And so it became obvious last year to the international community that whichever answer was being provided by Libra and by other stable coins, that could be a discussion in itself. But in any case, it was an answer to a relevant question, which was about bringing down the cost of remittances, which is what the CPMI and the FSB are now looking into. Now as Hyun said, there is only so much that that technology can do. A lot has to do with the structure of domestic financial systems, and a lot has to do with legal, and I would say even political, obstacles to global financial integration, which relates to, in particular, to legal requirements.

So just to give an example, the strengthening of AML-CFT requirements has had a consequence on the global correspondent banking network collapse. It's getting very hard to find a correspondent bank in many small developing economies now. And of course, that has an impact on cross border payments. So it just tells you that the G20 is the right level to address it because you need to coordinate a lot of work streams, action streams, which also require political commitment. And that's exactly what the FSB and CPMI are putting together. And they will publish an action plan early July where you will have all deductions listed and hopefully G20 finance ministers will commit to advancing them. 

I want to get a sense of how do you see participation of commercial banks in the case of an interest varying CBDC? These are big on the banking system's profitability as central banks compete for similar deposits with commercial banks.

Benoît Cœuré:

It's not an easy question because you don't have to have a single answer across jurisdictions, and an important factor about CBDC is that we want to agree to identify the challenges, to agree on the possible answers. We want them to be consistent and intervariable, but they don't have to be the same because legal frameworks differ from one country to another and because more importantly, financial structures differ from one country to another. So a very simple question, which is related to the question you're asking, which is, should CBDC be distributed by banks or should it be made accessible directly by the central banks? That is a question which has an impact on your financial structure and the answers may be different from one country to another. One of the key dimensions of our discussions among central banks is about the impact of CBDC on financial structures, the impact on bank deposits, and ultimately the impact on bank funding and financial stability.

And so that will be an important part of the considerations at country level and at a global level. And as I said that you don't need to have the single answer for that country, but what I want to say here because it's kind of implicit also in your question, is that what we want to untangle very carefully is the payment aspect of CBDC and the monetary policy aspect or the monetary policy consequences, because these are two different discussions. Right? So here we are discussing CBDC as a means of payment as a way to catalyse change, or in the payments universe, as a safe means of payment that we want to make accessible to the public. Any consequence from monetary policy, which includes the discussion on interest rate-bearing CBDC and how that would impact on consumption, how that would impact investment, etc., that's a different discussion. That is a monetary policy discussion that we'll have separately. And we really shouldn't mix up these discussions.

How are regulators taking the second version of Libra and is there a departure from the critical response to the initial proposal?

Benoît Cœuré:

Well, it is a dialogue that we're having, not the BIS particularly, but the global regulatory community is having with Libra. It started more than one year ago now. I would say it has been a fruitful conversation and dialogue. Concerns have been expressed first in the G7 report, which was issued last fall and then in the FSB report, which was issued earlier this year, regulates all the expressed concerns over a broad range of issues, which Libra has been accommodating and trying to answer. So it's too early to conclude, but I would just see it as a dialogue, which is moving forward and also moving forward at national level with different regulators. So it's too early to conclude, but I see a lot of attention being fed and an understanding of the concerns expressed by regulators. 

It's alluded to in the chapter, but would you sort of explicitly encourage central banks to allow non-bank PSPs direct access to payment systems? The second question is there's been a lot of investment in the payment sector the last few years. And as a result, there's a lot of companies, digital payments providers that have large amount of customers, but are in no way near being profitable. Is that something you think central banks and other regulators need to pay attention to?

Hyun Song Shin:

I think here the practices differ across jurisdictions. I think the principle that settlement on the central bank balance sheet is the most secure and in some ways the most efficient, I think in does argue for the participation of non-bank PSPs, but this is not universally accepted. I think there are historical differences across jurisdictions. And even in those jurisdictions where you have non-bank PSPs that do have access to the settlement account, sometimes it's only during the day and not overnight and so on.

But I think the general principle that it's desirable to have a central bank infrastructure there as the basis for the payment system, I think is not much in dispute. Exactly which institutions to include in the settlement process, I think that is more a matter of how you implement that principle in practice, but there is a pretty wide diversity of practises out there. So I think that is what I would say to your first question.

I think there has been a lot of investment and I think this is in a market that is quite dynamic. To some extent, it is an issue to do with competition and consumer protection. I think there are other public authorities who will also have an interest in that. I don't think it's a systemic issue as such in that if the businesses are small, it's mainly a consumer protection dimension, which will be key there. But I think this is one area where I think Benoît has a lot of expertise, so I would like to turn to Benoît at this point.

Benoît Cœuré:

It depends a lot what they are doing. If they're only technology providers rising or falling, life and death is part of the life in a novelty ecosystem, and we don't have that much to worry about. If they are providing payment services, then certainly supervisors and overseers should step in. They are in charge, and looking into the financials is part of what they do. I have no particular worry or concern that overseers may miss what is going on there. Certainly, they are looking into it. Maybe an additional remark is that what we might see as a result of this crisis, of the COVID crisis, is also a change in the competitive structure, that we see lots of SMEs going under everywhere, I mean fintech or not fintech. And so there is a chance or a risk that this crisis would result in a lot of creative destruction in the smaller fintech ecosystem and end up reinforcing the market for lots of big tech companies. Which would just raise the stakes and just enhance the importance of all the considerations related to competition that Hyun raised earlier in our conversation.

If COVID is going to make big tech even bigger and stronger, then industry structure and competition will become even more important for regulators and central bankers when we look at the future of this industry. So the jury is still out, but that's a very tangible risk here. 

In the chapter there's a lot of mention of privacy, but it's particularly in the context of legal privacy, so what sort of data would potentially be collected from a CBDC and whether government would have the right to use that. I was curious what conversations on your end had looked like about technological means of making privacy part of the system, i.e. distributed ledger technology comes up to these contexts a lot?

Benoît Cœuré:

I don't think we really have time to go into the technological details here, but clearly they are on the radar screen of the central banking community. You may have seen our recent research by the Bank of Canada, this week, actually, on CBDC and privacy, and also earlier research as part of the joint project by the ECB and the Bank of Japan, which is called Project Stella. It comes in different instalments, and the last one earlier this year was about how to balance audit ability and confidentially in the DLT-based market infrastructure. So not specifically CBDC, but any kind of DLT-based infrastructure. So yes, we're looking into it and that's exactly part of the discussions we are having collectively to identify solutions. So CBDC will be national, but all these technical discussions are discussions where we see a lot of merits to have them together so that we save energy and money and we identify the best practices. And clearly confidentially and DLT are part of the conversation. 

During a pandemic when the Fed and other central banking are thinking of justly allocating and distributing money to individuals, some researchers suggest that maybe the CBDC is the best channel to do that. And also they continue to argue that maybe the money should be given to people directly, and this will not be regarded as either debt from the government. So this kind of monetary financing, if it is done with CBDC, the monetary financing, these types of the new digital monitoring financing, is it the same as the old concept we have in familiar ways, or is it different in terms of the monetary financing if we use CBDC as a channel instrument?

When they said they are thinking about distributing money to individuals, and also some researchers are floating the idea that maybe the Fed can use the infrastructure of the Libra or Facebook, which means a Libra infrastructure will be used as the infrastructure of the digital dollar and additional dollars, CBDC. Is this a possible scenario? And if it is, what will this mean to the central banking infrastructure and also to the private digital currency like the Libra?

The chapter in the BIS Annual [Economic] Report touched upon the interoperability of the systems and the payment instruments. I'm wondering if several central banks in the world would issue a CBDC in the future, will the system be interoperable, or will different countries use the different systems. How do you envision a future unless CBDC has interoperability?

Hyun Song Shin:

The first question you asked was during the pandemic is CBDC the best way to implement the transfers to households and to small businesses. And I think the answer is that, in theory, whenever you have something which is fast and efficient and cost effective, that will be the most effective way. And it doesn't need to be a CBDC. I think what we found in the acute phase of the pandemic episode is that those countries that have fast retail payment systems with reliable ID systems have managed to do very well. That's both in terms of the direct transfers to households, but also the lending to small businesses. So, I don't think it's the CBDC as such which will give you an edge. You also ask the question about Libra and the cooperation between central banks on the digital dollar and interoperability. I think this is something that touches on some of the work that we've done in the CBDC working group. And perhaps I could turn over to Benoît for this one.

Benoît Cœuré:

Back to the first one, I think that's exactly the point I wanted to make earlier that we should aim at a dichotomy between separating the discussion on CBDC as a means of payment and the discussion on CBDC as an instrument of monetary policy. So some central banks may want to do CBDC or to use CBDC to change the way they implement monetary policy, some may not. These are sovereign decisions within national domestic monetary framework reporting being accountable to domestic jurisdictions and parliaments, and that's really a separate discussion. So we don't have to discuss monetary policy consequentially with CBDC when you want to discuss CBDC as a means of payment which is what we do here in this chapter. And we keep it separate.

On Libra and the cooperation between central banks, I don't see any realistic prospect that there would be a single CBDC because that's not how the global monetary and financial system works, and there is no political basis for doing so and political appetite for doing so. What we might see is corporation on how to do CBDC and then they will be decided and designed at a national level. And we want CBDC to interoperate with other means of payments at the domestic level, and also to interoperate with each other at a global level. And that's the kind of issues that the working group, which I was referring to earlier, is looking into. And that's also the kind of issues where the BIS can help shed a practical light and the Innovation Hub, which I'm in charge of, is exactly there to help central banks focus on detailed aspects of CBDC.

So we might very well launch some kind of work on interoperability of CBDC. If that is the conclusion that central banks come to, if they want us to dig deeper into it, we can shed light on those kinds of practical issues. That said, interoperability is not only a technological issue, it's also a standardisation issue. And so we might come also with our conclusions on international standards that we would like the industry to adhere to. And that would be a different discussion. So as you see, it's pretty often open, but what I see are very clearly is the appetite to move together and to have the discussion. 

I also wanted to ask about the interest-bearing capability of CBDCs, which could provide an extra tool for monetary policy transmission, but possibly at the expense of diminishing the intermediary role of commercial banks. Where do you see the consensus settling amongst the central banking community on the option of CBDCs being interest-bearing?

Hyun Song Shin:

I think we should distinguish between the use of CBDCs as a means of payment, CBDCs as an instrument of monetary policy. I think your question, and there was a question earlier with the interest-bearing capacity of CBDCs, I think that it bears very much on the monetary policy dimension. And I think that's something that we will need a separate, careful look on how monetary policy implementation would be effected by CBDC like that. And I think it's fair to say that it's still a very fine the horizon in terms of actually looking very deeply into the practical implications of that.

But I think in general terms, I think it's important that we, we bear in mind not only the technical and the design features, but also what the impact of CBDCs will have more broadly in the financial system. If you have CBDCs that are going to be widely used, will we see a much larger footprint of the central bank itself in the financial system? I think that's an important question for us to address. And what will that mean for other financial intermediaries in the financial system. So I think those are, if you like, the more structural, the deeper questions that I think we should be addressing first before we get to the more detailed monetary policy implementation question, I would say.