And without proper regulation, digital money could be a virtual safe haven for criminals’ illicit financial transactions. Effective implementation of a robust framework to combat money laundering and the financing of terrorism is needed. However, digital money also brings regulatory opportunities, such as more effective real-time data analytics and monitoring.
Access to bank and non-bank transaction accounts has improved dramatically over the past several decades, in particular in emerging market and developing economies (EMDEs).12 Yet in many countries, a large share of adults still have no access to digital payment options. Even in advanced economies, some users lack payment cards and smartphones to make digital payments, participate in e-commerce and receive transfers (such as government-to-person payments). For instance, in the United States, over 5% of households were unbanked in 2019, and 14% of adults did not use a payment card in 2017. In France, in 2017, 13% of adults did not own a mobile phone.13 Lower-income individuals, the homeless, migrants and other vulnerable groups are most likely to rely on cash.
Standards organizations can contribute by defining terms, developing taxonomies, and creating specifications and standards in support of the broader ecosystem. The international community, such as other central banks and policy makers, is also important given the role of the U.S. dollar in international trade and finance as well as the opportunity to learn from CBDC pilots or initiatives in various jurisdictions. Other questions include how visitors and foreign businesses might access a CBDC, how it could be used offshore, and what rules should govern this type of use.
By supporting the fintech sector and enabling public-private platforms, the Bank could help drive innovations that benefit the entire economy. Box C expands on the anticipated benefits of the digital pound public-private platform. As money and payments have become more digital, the world’s central banks have realized that they need to provide a public option—or let the future of money pass them by.
A traditional database connected to an API that exposes basic programmable logic (left) enables stored program logic in the form of applications to interact with database records. A blockchain database (right) can store both value records and program logic in the same database, with some intrinsic mechanism enabling interaction between the two. 34 For a relevant discussion, see UK Department for Digital, Culture, Media and Sport, “The UK digital identity and attributes trust framework”, February 2021. 26 See R Auer, C Monnet and H S Shin “Permissioned distributed ledgers and the governance of money”, BIS Working Papers, no 924, January 2021.
The Federal Reserve is committed to hearing a wide range of voices on these topics. Since Russia’s invasion of Ukraine and the G7 sanctions response, cross-border wholesale CBDC projects have more than doubled. There are currently 13 of them—including Project mBridge—which connects banks in China, Thailand, the UAE, Hong Kong, and Saudi Arabia. Third-party transaction anonymity which protects user privacy and only allows for traceability when otherwise required by law, including through a court order. The capacity for third-party features such as custody and recoverability, account and transaction monitoring, and other services. According to a 2018 report by the Board of Governors of the Federal Reserve System, cash continues to be the most frequently used payment instrument, representing 30 percent of all transactions and 55 percent of transactions under $10, with 77 percent of those transactions made in-person.
The 2020 BIS Annual Economic Report drew a contrast between “walled gardens”, where users are served in a closed proprietary network, and a public town square in which buyers and sellers can meet without artificial barriers. In return for access to all buyers, the sellers must stick to the standards set by the public authorities with a view to promoting the virtuous circle of greater participation and better services. The availability of massive amounts of user data gives rise to another important issue – that of data governance. Access to data confers competitive advantages that may entrench market power. Beyond the economic consequences, ensuring privacy against unjustified intrusion by both commercial and government actors has the attributes of a basic right. For these reasons, the issue of data governance has emerged as a key public policy concern.
