Summary
Many global central banks are independently exploring distributed ledger technology for use within their financial systems. The Forum’s shared platform streamlines and enhances these efforts by coordinating research-sharing and collaboration among central banks to develop a knowledge base of key insights that will inform policies and deployments.
The Challenge
Central banks play one of the most critical roles in the global economy, from managing price stability and monetary policy, to safeguarding the domestic financial system through oversight of commercial banks. Their decisions about implementing distributed ledger and digital currency technologies in the future will have far-reaching consequences on financial and monetary systems, domestic economies, and the welfare of citizens. Distributed ledger technology (DLT) has the potential to enhance efficiency, financial inclusion, resiliency, and security in financial systems. At the same time, any imprudent DLT or digital currency implementation poses significant risks to financial stability on a domestic or even international scale.
Central banks across the world have been formally or informally experimenting with DLT. However, they are often conducting this research independently without efficient ways to share insights, coordinate, or scale work. Further, they may be reluctant to publicly share their activities because of the impact such signalling may have on markets. The result is that research is poorly disseminated and may be duplicated, and there are missed opportunities to collaborate over high-potential research topics.
Central banks across economies also have difficulty closely following rapidly evolving developments in DLT and digital currency technology in order to fully understand their implications, possibilities, and risks. They must at once understand and evaluate technology capabilities available now and in the future, determine their value and applicability to financial systems and central bank operations, and critically study any and all risks and challenges posed by implementing DLT.
Finally, experimentation of DLT in the financial sector to-date has primarily been driven by large and well-resourced financial institutions seeking to replace or retro-fit privately operated financial infrastructure for the benefit of their clients and shareholders. This focus may overlook significant opportunities to improve publicly operated financial infrastructure or to deploy new, collaborative public-private efforts of DLT-based financial infrastructure.
The Opportunity
The Forum is convening a community of technologists from central banks across diverse countries to coordinate and scale experimentation efforts. The community will capture lessons from current research and pilot projects following appropriate levels of privacy and anonymization to avoid potentially harmful market signalling. These insights will be synthesized into trusted governance frameworks that can help central banks around the world understand salient issues and experiment with and potentially deploy blockchain for proven use cases in an effective, safe, responsible, and inclusive manner.
The community will co-design frameworks to support investigation and potential deployment of relevant use cases such as cross-border inter-bank settlements; wholesale or retail central-bank issued digital currency (“CBDC”); and know-your-customer/anti-money-laundering topics. The Forum will partner with forward leaning jurisdictions and cross-sector stakeholders to pilot these frameworks with high-potential use cases, testing key assumptions and implementation risks and challenges. In so doing, it will help to scale responsible experimentation globally and assure that any future implementations are validated by robust research and diverse test cases.
Relevant institutions, start-ups, and experts have the opportunity to engage in this process and shape the exploration and experimentation of DLT for global financial and monetary systems. Importantly, they can ensure that potential DLT implementation does not result in increased stratification and systemic risk, but instead lays the groundwork for truly stable, efficient, and inclusive global systems.
Impact
