CBDCs Without Laws Equal Disaster, Economist Warns: 'Money's A Social Construct'

Agustin Carstens, the general manager of the Bank for International Settlements (BIS), has emphasized the importance of establishing legal frameworks to support the implementation and growth of Central Bank Digital Currencies (CBDCs).

This topic is expected to be a focal point at Benzinga's Future of Digital Assets conference on Nov. 14, where the future of digital currencies and their integration into the global financial system will be discussed.

Carstens, who was Governor of the Bank of Mexico from 2010 to 2017, highlighted that central banks play a pivotal role in ensuring public trust in money, which is crucial for the stability of financial systems.

With the evolving demands of society, where cash usage is declining and there's a growing appetite for digital and programmable money, central banks need to adapt.

He pointed out that while the private sector has attempted to meet these demands with cryptocurrencies and stablecoins, these instruments lack the backing, protection, and stability offered by central banks.

Central banks globally are recognizing the potential of CBDCs.

A 2022 CPMI survey revealed that 93% of central banks were engaged in CBDC-related activities, with over half actively running experiments or pilots.
These CBDCs, whether wholesale or retail, promise to offer faster, cheaper, and more efficient payment solutions, especially for cross-border transactions.

However, the technological aspect of CBDCs is just one side of the coin. Carstens stressed the importance of legitimacy for any CBDC implementation.

Also Read: Kraken Marks 'Important Milestone' In Europe: New Licenses For Expanded Fiat, Crypto Services

"Money is a social construct," he stated. Legal framework is crucial for the legitimacy and trust people place in money, he explained. For CBDCs to be successful, "the legal authority of central banks to issue them must be firmly established in law."

He cited an IMF paper from 2021 which indicated that nearly 80% of central banks either cannot issue a digital currency under their existing laws or the legal framework is ambiguous.

Key elements that the legal framework must address include ensuring the privacy of CBDC users, maintaining the integrity of the financial system, and providing users with a choice between CBDCs and other forms of money. Carstens elaborated on the importance of balancing privacy with financial system integrity, using the example of cash transactions.

While small cash transactions can be anonymous, larger ones require scrutiny to prevent money laundering.

He called for a collaborative effort, both nationally and internationally, to develop a cohesive legal framework for CBDCs.

Further, he emphasized the role of the BIS in supporting this endeavor and expressed hope for fruitful discussions that would pave the way for the flourishing of CBDCs in a legally robust environment.

Read Next: Chase's Crypto-Related Transactions Ban In UK: A Sign Of The Times — Or A Sign Of Weakness?

Meet and engage with transformative Digital Asset and Crypto business leaders and investors at Benzinga's exclusive event - Future of Digital Assets. Tickets are flying —  get yours!