G7 leaders provide advice for central banks on digital currencies
This week, the group of seven advanced economies met to discuss about central bank digital currencies (CBDCs), deciding that they should "cause no damage" and fulfill stringent requirements. On October 13, finance officials from the G7 gathered in Washington to discuss central bank digital currencies, and they adopted 13 public policy principles for their deployment.
The G7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, ordered that any newly created CBDCs "cause no harm" to the central bank's ability to preserve financial stability. G7 finance ministers and central bankers said in a joint statement:
“Strong international coordination and cooperation on these issues helps to ensure that public and private sector innovation will deliver domestic and cross-border benefits while being safe for users and the wider financial system.”
It added that CBDCs would complement cash and could act like liquid, safe settlement assets in addition to anchoring existing payments systems. Digital currencies must be energy efficient and fully interoperable on a cross-border basis, the statement added.
G7 leaders reaffirmed that they shared responsibilities for minimizing "harmful spillovers to the world monetary and financial system."
The issue of CBDCs should be "based on long-standing public commitments to openness, rule of law, and solid economic governance," according to the statement. A CBDC has yet to be issued by a G7 country, but several, like the United Kingdom, are actively exploring the technology and economic implications.
They reaffirmed, echoing a similar remark made by the broader G20, that no global stablecoin initiative should commence operations unless legal, regulatory, and supervision criteria are met. The remarks might be in reference to Facebook's upcoming Diem cryptocurrency, which has prompted concerns among financial executives and central bankers.
The United States has been dragging its heels on CBDC plans, and the Federal Reserve remains wary about digital currencies. On September, America risked falling behind technologically and financially if it does not seriously explore its own CBDC.
China is already well ahead of the competition with its digital yuan, and its current assault on cryptocurrency is likely to be part of its broader ambitions to promote and regulate central bank monetary flows.