The Bank for International Settlements’ (BIS) head of innovation hub, Benoît Coeuré, said that technology firms are forcing central banks worldwide to get serious about the possibilities of new financial technology.
During an interview with French newspaper L’Express published on Nov. 12, Coeuré said that financial technology innovations by major tech firms are behind central banks’ recent eagerness—or at least willingness—to innovate too. Given the fast transition to digital payments, he said that “central banks must rethink their software and review their role in this new environment.” The reason is simple, he added:
“If the ECB, the Fed and the other central banks want to continue to fulfill their role vis-à-vis society, which is to ensure financial stability and to ensure that monetary policy can be adjusted, broadcast throughout the economy, they must adapt their intervention methods to the new digital situation.”
Coeuré cited mobile payment systems such as Apple Pay and digital payment services like PayPal, noting that they jointly brought a revolution to the financial space. While he admitted that all those services bring substantial benefit to their users, he pointed out that “the emergence of closed payment channels dominated by tech giants poses risks for both competition and data protection.”
Furthermore, Coeuré acknowledged that Facebook’s Libra stablecoin was the real reason why central banks started working on central bank digital currencies (CBDCs).
“The real trigger was the announcement of Facebook’s Libra project, which completely changed the nature of innovation, because the project is no longer focused solely on the customer interface,” he said. “[Libra] is a global, closed and self-sufficient project since there is at the same time a means of payment, a storage mechanism with a wallet, and a global network which makes it possible to ensure transfers from one place to another without going through the central bank settlement systems.”
Even though China’s digital yuan has been years in the making, Libra accelerated its launch schedule, the People’s Bank of China has admitted.
A international financial institution set up as a bank for central banks, the Bank for International Settlements seems to recognize the need for innovation in the financial system. However, as Modern Consensus reported in mid-September 2019, the institution has shown itself to be rather unfriendly towards stablecoin-fueled innovation.
“The bar for regulatory approval will be high,” Coeuré warned at the time. “As a new technology, stablecoins are largely untested, especially on the scale required to run a global payment system. They give rise to a number of serious risks.”
On the other hand, the BIS shows a much warmer stance towards CBDC developments. This summer the institution released a report which called such digital currencies evolutionary change that can “set high standards for safety and risk management and serve as a basis for sound innovation in payments.”