Recent developments have heightened global awareness of the opportunities, challenges, and risks posed by new forms of digital currency. During the early development of privately created digital currencies, authorities generally took a hands-off approach, not sensing substantive risks or not wanting to interfere with technological innovation. While technological development remains an important objective, the time has come for the public sector to play a more decisive role. As new payment methods appear, appropriate regulatory frameworks will be critical. And as new technologies in the space cut across traditional lines of jurisdictional responsibility, coordination among the public and private sectors, both domestically and internationally, is increasingly required.
In the near term, the public sector will be making important decisions that will shape the trajectory of digital currency development. These include decisions related to regulation, improving efficiency, resilience, and competitiveness of payment systems, and whether to issue a central bank digital currency (CBDC). Policymakers are also assessing how to support responsible digital currency innovation while safeguarding or promoting financial stability, financial inclusion and consumer protection.
In response to these dynamics, the Forum’s Shaping the Future of Blockchain and Digital Assets Platform is assembling stakeholders across the public and private sectors to explore and co-design global frameworks that address the risks, gaps, and opportunities in digital currency governance.
Digital currency, including stablecoins and central bank digital currency (CBDC), is evolving rapidly with potentially far-reaching consequences for society. However, unresolved policy decisions must be made regarding the future of payments and monetary arrangements. Coordination among the public and private sectors is required to address new forms of digital payments that transcend national borders and traditional jurisdictions. Relevant regulatory frameworks must be mapped and checked for coverage of critical standards, such as consumer protection and data privacy.
Over the course of 2020 and 2021, the Forum will convene the Digital Currency Governance Consortium (DCGC) around a series of virtual workshops and roundtables to address key questions and governance gaps in digital currency. The Digital Currency Governance Consortium is composed of more than 80 organizations representing numerous sectors and geographies. DCGC members represent the public sector, private sector and civil society across 6 regions – Africa, Asia, Europe, Middle East, North America, and Latin America/Caribbean. The strong sectoral and geographical diversity of the DCGC will ensure that the output reflects many perspectives and points of view.
The Digital Currency Governance Consortium centres on the discussion and development of relevant and timely global frameworks for digital currency governance that benefit from multi-sector input and co-design. In its work, it will:
• Identify gaps and areas of further investigation for digital currency policy and governance.
• Surface incompatibilities and trade-offs with respect to digital currency technology, such as financial access and compliance, and the relevant implications and consequences for users.
• Co-design needed frameworks or analysis to contribute to the global understanding and responsible deployment of CBDCs and stablecoins.
Its work will centre on the following content:
1. Stablecoin and CBDC Capabilities. Digital currency has been touted as a solution for long-standing challenges within the currency and payments ecosystems – ranging from inter-bank settlements to financial inclusion – yet little rigorous evaluation of its fitness for purpose and viability has been conducted. This working group will assess the capabilities of stablecoins and CBDCS and the value propositions for various use cases. It may also assess their limitations and the risks they introduce into the monetary system. Topics include:
• Assessment of the value of stablecoins and CBDCs, with a particular emphasis on financial inclusion and providing benefits to the financially under-served as compared to existing options.
• Exploration of the viability of stablecoins for aid delivery and disbursement.
2. Regulatory Choices. Fragmented regulation may create uneven competitive environments and opportunities for illicit activity in certain jurisdictions, while stifling innovation by well-intentioned actors who are reticent to experiment without regulatory certainty. This working group will examine how we can establish the right regulatory, supervisory, privacy, and consumer protection guidelines and policies over new forms of digital currencies. The working group will also assess the role of the public sector in the era of digital currency growth, especially the public-private division of responsibility. Topics include:
• Exploration of the various roles of central banks and other public financial institutions in the era of digital currency growth, and options for international cooperation.
• Risks to consumers posed by various forms of digital currency.
• Evaluation of where regulatory guidelines are incompatible and may lead to confusion, or where there are significant regulatory gaps.
3. Technology Choices. The role of existing and emerging technologies in addressing existing problems related to digital currency requires careful consideration. This working group will investigate the right technological frameworks for operationalizing digital currencies. Topics will include architecture, interoperability, and privacy, and centre on the following:
• Framework helping to guide central banks in their analysis around CBDC technology platforms and providers.
• Mapping of the spectrum of privacy and confidentiality options and approaches that are technically feasible and available for CBDC.
• Exploration of various forms of interoperability and definitions for what it means for a digital currency issuer to say that their system is "interoperable."
Consortium members will delve into the topics listed above, as well as others that may arise. The working groups will ensure continued public-private cooperation on these important issues. Final deliverables will be released by summer 2021.