The world’s top finance leaders have underscored the important guidelines for the issuance and regulation of Central Bank Digital Currencies (CBDCs). The G7 highlighted and okayed the key principles to guide the regulation of CBDCs across the world.
What are CBDCs?
Central Bank Digital Currencies (CBDCs) are legal digital tokens of the currencies that are currently in use by the country issuing them. These digital tokens are created by the central banks of the country and are stored on digital wallets. As legal tenders, they are fully recognized, backed, and deployed by the government for use and will be exchanged, traded, and accepted where fiat currencies are used.
The race to create and deploy CBDCs intensified in recent months following recent calls around the world for the regulation of cryptocurrencies by governments. Governments around the world have sought a less decentralized form of digital tokens that they can regulate and control. CBDCs appear to be the answer.
The European Central Bank (ECB) launched the initial phase of the European digital token, the Digital Euro, but it is China that is leading the deployment of CBDCs as the China Central Bank has released the Digital Yuan, recording over $30 million worth of the token in circulation within a few months. India’s Reserve Bank had announced earlier this year that the country would have its CBDCs released by the end of the year 2021 for early-stage trials after the Central Bank concludes the developmental work.
The creation of CBDCs has now led to discussions regarding the deployment and regulation of digital tokens. Yesterday (Wednesday, 13th October 2021), the G7 finance leaders (officials from the seven advanced economies of the world), released a statement to underscore the important guidelines for the creation and regulation of CBDCs.
According to Reuters, the G7 leaders met and released a statement on CBDCs. In the statement, the G7 spoke highly of digital money innovation and its impact on the global economy. The G7 also underscored some important regulatory guidelines bothering government and public policies; stating the need for collaborative efforts towards minimizing the potential risks of CBDCs.
In its statement, the G7 said that CBDCs must be used in a way that poses no harm or risk to the present function of central banks, and that CBDCs must, as a matter of importance, support the central banks to provide economic stability through monetary and financial policies. The G7 went further to say that CBDCs must be built on traditional financial values such as transparency, sound economic policies, and being subject to the rule of law. The G7 also advocated a focus on user safety across borders; for this, it called for stronger international cooperation to ensure the safety of private and public sectors.
The G7, regarded as a top financial giant, has a long arm of influence regarding world economic and financial policies and seeks stability in countries. Understanding the important guidelines for CBDCs creation and deployment is seen as a move to guide countries towards the safe creation and use of CBDCs to avoid monetary crises.