CBDC likely to pose risks for financial stability, says World Bank
business-standard.comThe World Bank has said that introduction of the Central Bank Digital Currency (CBDC) could potentially pose risks to privacy, increase responsibilities of the central bank, and may also lead to currency substitution through cross-border transactions.
“The introduction of CBDC could disrupt the existing financial-intermediation structure. In addition, depending on design and country context, CBDC could pose risks to financial stability, financial integrity, data protection and privacy, and cyber resilience. Further, it can have implications for the legal and regulatory framework, increased responsibilities of the central bank, and could also lead potentially to currency substitution, especially in the context of cross-border CBDC,” the multilateral lending organisation said in its latest “South Asia Economic Focus” released on Wednesday.
CBDC differs from traditional central bank money in that it can be digitally created and recorded on centralised or decentralised ledgers.
There are two types of CBDCs: Wholesale CBDC, for which access and circulation are restricted to predefined classes of agents. They are typically banks and select financial institutions under specific regulatory and policy requirements, as is the case today with central bank reserves. Then, there is the retail or general-purpose CBDC, for which access and circulation are open to a wider class of agents, including individuals.
Many countries, including India, are exploring the issuance of CBDC. The Bahamas and Nigeria have already launched CBDC. Others are in the piloting phase, including Jamaica, Eastern Caribbean, China, Ghana, South Korea, South Africa, Uruguay, and Saudi Arabia.
Many are in the research phase, like India, which has announced that
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