BIS encourages central banks to adapt to digital currencies and payments

Central banks, as guardians of the safety and integrity of the payment system, must keep evolving to meet the challenge of rapidly accelerating digital innovation, the Bank for International Settlements (BIS) writes in its Annual Economic Report.

In a special chapter on central banks and payments in the digital era, the BIS analyses the implications of the radical transformation of payment systems over recent years. It also looks at the impact of Covid-19 on payment behaviour. 

“As innovations increasingly emerge from outside the traditional two-tier structure provided by central banks and commercial banks, it is essential that policymakers meet the challenges of these new innovations to maintain the integrity of the payment system,” said Hyun Song Shin, Economic Adviser and Head of Research at the BIS. “While the private sector is well placed to draw on ingenuity and creativity to serve customers better, this is best done on solid central bank foundations.”

Central banks play a pivotal role in safeguarding the payment system by underpinning trust in money, thus supplying the ultimate safe retail (consumer) and wholesale (financial institution) settlement medium. Their operation of public infrastructures and promotion of interoperability and competition are also key to accessible, low-cost, high-quality payment services.

But they also need to foster innovation to help tackle systemic shortcomings and ensure that households and businesses have access to a diverse set of safe and efficient payment methods. One option at the frontier of policy opportunities is the issuance of CBDCs, which could offer a new, safe, trusted and widely accessible means of payment.

“Central banks around the world are stepping up their efforts to study CBDCs and, whether wholesale or retail, the goal is to create safe and reliable settlement instruments for transacting in the digital economy,” said Benoît Cœuré, Head of the BIS Innovation Hub. “In tandem, international policy coordination can ensure that all advances in payment systems facilitate greater efficiency, cross-border integration, safety, financial inclusion and innovation.”

The Report also analyses the pandemic’s effect on retail payments, with a focus on unequal access among the poor and unbanked. It highlights the surge in contactless payments to more than 33% of card-present transactions from just over 27% in September, as well as the rapid growth in e-commerce, the slide in cross-border transactions and a forecast 20% drop in migrant remittances.

This special chapter is released on 24 June, followed by the full Annual Economic Report 2020, and the Annual Report 2019/20, on 30 June.