CBDCs may pose risks to financial stability, World Bank warns

The introduction of central bank digital currency (CBDC) will not only increase central bank responsibilities, but could also “disrupt the existing financial intermediation structure,” the World Bank said.

“Depending on the design and country context, the CBDC could pose risks to financial stability, financial integrity, data protection and privacy, and cyber resilience,” the World Bank said in a statement on Wednesday. its “South Asia Economic Focus” report.

Speaking of the potential risks and challenges associated with the introduction of CBDC, the multilateral lending organization said these could have implications for the legal and regulatory framework.

Countries exploring CBDCs

The World Bank’s warning comes at a time when many countries, including India, are considering issuing CBDCs.

According to a 2021 survey by the Bank for International Settlements (BIS), 86% of central banks around the world were exploring the potential of CBDCs, while 15% were about to launch their pilots, Financial Express reported.

While Nigeria and the Bahamas have already launched the digital currency, other countries like China, South Korea, South Africa, Saudi Arabia, Jamaica, Eastern Caribbean, Ghana and Uruguay are in the pilot phase, according to the World Bank report.

What is a CBDC?

CBDC is a legal currency issued by the central bank of a particular country but in digital form. The new form of central bank money, denominated in existing fiat currency, will be convertible into cash with authorized entities.

According to the World Bank, there are two types of CBDCs: wholesale and retail CBDCs. Wholesale CBDCs are distributed among “predefined categories of agents” such as banks and certain financial institutions. On the other hand, the access and circulation of retail or general-purpose CBDCs is open to a broader category of agents, including individuals.

What’s happening in India?

While presenting the Union budget this year, Finance Minister Nirmala Sitharaman said the government would launch the digital rupee, a central bank digital currency, from 2022-23. Last week, Reserve Bank of India Deputy Governor T Rabi Sankar said the degree of anonymity in retail transactions through the CBDC would most likely be the same as in cash.

Sitharaman also said that the “digital rupee” is a conscious call made in consultation with the Reserve Bank of India, and that the government sees clear benefits in a central bank-led digital currency.


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