Legitimacy, privacy, integrity, choice: towards a legal framework for central bank digital currencies

Speech by Mr Agustín Carstens, General Manager of the BIS, at the BIS Innovation Hub-Financial Stability Institute conference on legal aspects of central bank digital currencies, Basel, Switzerland, 27 September 2023.

BIS speech  | 
27 September 2023


Good morning and welcome to today's conference. We are all looking forward to a stimulating discussion of the important legal questions that must be addressed if central bank digital currencies (CBDCs) are to become a core part of monetary systems, whether in wholesale or retail form.

Importance of CBDC

Before addressing the legal issues, I would like to talk about CBDCs more fundamentally. 

A key role, perhaps the key role, of central banks is to provide money for society. Currently, they do this primarily through the provision of cash and central bank reserves. In practice, these account for only a small share of the money used by the public. The bulk of it consists of commercial bank money, in the form of bank deposits. Even so, central banks play a pivotal role in ensuring the public's trust in money. It is this trust that makes commercial bank money useful as a means of payment in our societies.

Central banks create trust in several ways. They regulate and supervise the payments system. They control the economy's unit of account. They provide for settlement finality. And the central bank also underpins the solvency of the banking system as a whole. As lender of last resort, the central bank provides emergency liquidity to the system and mitigates against potential bank runs.

Taken together, these actions uphold confidence in the safety and value of money. They ensure that a dollar is a dollar, a euro is a euro and, here in Basel, that a franc is a franc, whether that dollar, euro or franc is a banknote or a deposit.

This apparently simple concept – the "singleness of money" – is extremely important. If singleness were ever to be in doubt, people would run for cash. Individual banks – and ultimately the whole system – would be under threat. And relatedly, central banks guarantee the finality of settlements in central bank money, providing assurance that transactions are final and irrevocable, even if parties to the transaction go bankrupt or fail.

As the defender of the value of money, central banks have a responsibility to ensure that money is available in forms that meet society's needs and expectations.

The current monetary system, based on cash and commercial bank money, continues to serve society well. 

But it needs to evolve. Cash use is declining.1 Users are increasingly demanding new forms of money. Advances in digital services are highlighting shortcomings in existing systems, while raising expectations about what money should do. People want their money to be digital and programmable. They want to be able to transfer it across borders quickly, cheaply and safely.

The private sector has sought to meet these demands by issuing new forms of private money. Examples include unbacked cryptocurrencies and stablecoins. While they have achieved some popularity as speculative investments, these financial instruments are not money. They do not offer the backing and protection of the central bank; a reliable regulatory and supervisory framework; access to the central bank as lender of resort; or guaranteed finality of payments. Even stablecoins do not assure a stable value. They do not and cannot meet the standards the public expects of money.

Central banks have a responsibility to meet the public's demands and drive innovation in money and the financial system more broadly. But they cannot do this alone. They must work closely with other stakeholders, including the private sector.

Increasingly, central banks around the world are examining how CBDCs could address these demands. According to a CPMI survey, in 2022 93% of central banks were engaged in some form of CBDC work. Of these, more than half were running concrete experiments or working on pilots.

Some central banks are focusing on wholesale CBDCs, intended for the settlement of interbank transfers and related wholesale transactions. Wholesale CBDCs have vast potential in the areas of automation and risk mitigation. They could in effect make central bank money programmable, for example by providing that settlement will occur if and only if certain conditions are met.

Wholesale CBDCs would also facilitate the development of more sophisticated financial products for retail purposes, such as tokenised deposits. The resulting system would likely resemble today's two-tier banking system, with central banks providing the foundational layer and private entities providing the customer-facing services. A "unified ledger", as proposed in our recent Annual Economic Report, would help to seamlessly integrate the various layers of the digital monetary system. In time, it could even be extended to allow for simultaneous and instantaneous settlement in central bank money across asset classes.

Other central banks are exploring retail CBDCs and this is the focus of the conference today. A retail CBDC has a lot of potential to respond to the public's evolving needs. It could exist alongside cash, offering the public a digital alternative to banknotes and coins. It could deepen financial inclusion, as several experiences with digitalisation in emerging and developing countries have shown.2, 3 And it has huge potential to make payments faster, cheaper and easier, particularly across borders.4

Importance of legitimacy for any CBDC implementation

Much of the discussion around CBDCs focuses on technology. But, as this audience knows, this is only part of the challenge. Legal frameworks must also advance if we want CBDC to deliver on its potential. 

Money is a social construct. People trust in it today because they know others will trust in it tomorrow. The legal framework is a key underpinning for the legitimacy of money, and the trust that people place in money. Without the law, money cannot function. 

This applies as much to CBDCs as it does to other forms of money. At the same time, CBDCs raise new questions and will involve new use cases. The legal framework must keep up.

Most fundamentally, the legitimacy of a CBDC will be derived from the legal authority of the central bank to issue it. That authority needs to be firmly grounded in the law.

Central banks have legally defined mandates that set out the functions and tasks they must perform, and the powers they have to accomplish them.

In most countries, laws are specific about the kinds of money the central bank can issue. In most cases, these include banknotes and coins, as well as credit balances on current and reserve accounts. According to an IMF paper published in 2021, close to 80% of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear.5

This needs to be rectified. The public rightly demands forms of money that meet their needs and expectations. Central banks have a mandate to meet those demands and have made significant investments to address the technical and operational requirements for CBDCs. It is simply unacceptable that unclear or outdated legal frameworks could hinder their deployment. The work to address these issues needs to begin in earnest. And it needs to proceed at pace.

A CBDC also needs to function within a framework of clearly defined rights and obligations. In my view, at least three core elements must be preserved:

·         the privacy of CBDC users and the protection of their data;

·         the integrity of the financial system; and

·         the ability of users to choose between CBDC and other forms of money.

These are fundamental issues and the legal framework for CBDC must get them right.


Let me start with privacy.

Most countries have laws to protect people's personal data.6These laws set out what governments and the private sector may and may not do in relation to the collection, storage and use of personal information. They reflect a social consensus on the protections for and the limits on privacy.

These laws establish strong privacy protections but also limits to that privacy. We see the operation of some of those limits when we consider the safeguards that currently exist around the use of cash in the formal economy. 


These safeguards impose limits on our privacy to strengthen the integrity of the financial system as a whole. 

Let me give a concrete example. I can buy a bottle of water with cash, anonymously and with no questions asked. But if I wanted to withdraw a large amount in cash, or if I tried to buy a house with cash, I would expect to receive significant additional scrutiny. 

Why? Because governments are concerned to ensure that these transactions are not being conducted in order to launder the proceeds of crime.

The challenge we face is how to adapt existing privacy protections and financial integrity safeguards so that they can operate in a digital context.


After privacy and integrity, we come to choice. While the trend away from cash towards digital payments is strong in many countries, it is important that it reflects the choices made by consumers and businesses. A retail CBDC may be expected to be available alongside cash. It would be one of a menu of options available to users, which should continue to include both cash and commercial bank money. A central bank that introduces a CBDC should increase the choices for society, not diminish them. The legal framework will play an important role in ensuring this is the case. 


As I see it, the task we face is to update and modernise the existing legal framework in a way that ensures legitimacy, privacy, integrity and choice in a digital context.

I hope that our discussions today will facilitate the development of international principles that can guide jurisdictions working on these issues. It is a complex balance of national and international perspectives.

First and foremost, a conversation needs to take place inside countries. Different legal systems approach these questions in different ways. It is for each jurisdiction to decide whether to issue CBDC and how to balance the rights and obligations of its users at a national level. The answer to these questions will often depend on the local legal framework, as well as on culture and traditions. Many countries are happily going cashless. For others, cash is still king.  

At the same time, international coordination and cooperation is critical. It would be unfortunate if we ended up with a fragmented system and legal framework in which different digital currencies don't interoperate.

The BIS is committed to continuing to support work in this space and to providing a forum for these important discussions. Work is ongoing through the legal projects led by the BIS Innovation Hub but gatherings like this are also invaluable in informing national and international work.

I look forward to rich and insightful discussions today. By building a robust legal framework, we can all ensure that CBDCs will flourish.

1      Bank for International Settlements, "Digital payments make gains but cash remains", CPMI Brief, no 1, January 2023.

2      K Croxson, J Frost, L Gambacorta and T Valletti, "Platform-based business models and financial inclusion", BIS Working Papers, no 986, January 2022.

3      B Tan, "Central bank digital currency and financial inclusion", International Monetary Fund Working Paper, WP/23/69, March 2023.

4      Committee on Payments and Market Infrastructures, BIS Innovation Hub, the International Monetary Fund (IMF) and World Bank, "Central bank digital currencies for cross-border payments", Report to the G20, July 2021.

5      W Bossu, M Itatani, C Margulis, A Rossi, H Weenink and A Yoshinaga, "Legal aspects of central bank digital currency: Central bank and monetary law considerations", IMF Working Papers, WP/20/254, 2020, p 14.

6      The EU's General Data Protection Regulation (GDPR) is one example.