The G7 Finance Ministers, along with several international organizations, met the past couple of days in the UK to discuss “building a strong, sustainable, balanced and inclusive global economic recovery.” Intermingled amongst the goal of creating a global minimum tax of 15% targeting big tech firms and creating a “green the global financial system” was a statement on Central Bank Digital Currencies or CBDCs.
The investigation of, and in certain situations, issuance of digital currencies issued by central banks has picked up pace in recent months. The fact that China has already issued a pilot digital yuan, a program that continues to expand, and the emergence of stablecoins based on fiat currency have accelerated the recognition that central banks need to speed things up when it comes to the future of money. Most developed countries have internal projects reviewing the benefits and challenges of CBDCs with particular emphasis on how digital money may impact monetary policy.
According to the joint statement, innovation in digital money and payments has the potential to bring significant benefits but also raise public policy and regulatory issues.
To quote the G7:
“G7 Central Banks have been exploring the opportunities, challenges as well as the monetary and financial stability implications of Central Bank Digital Currencies (CBDCs) and we commit to work together, as Finance Ministries and Central Banks, within our respective mandates, on their wider public policy implications. We note that any CBDCs, as a form of central bank money, could act as both a liquid, safe settlement asset and as an anchor for the payments system. Our objective is to ensure that CBDCs are grounded in long-standing public sector commitments to transparency, the rule of law and sound economic governance. CBDCs should be resilient and energy-efficient; support innovation, competition, inclusion, and could enhance cross-border payments; they should operate within appropriate privacy frameworks and minimise spillovers. We will work towards common principles and publish conclusions later in the year.”
The G7 continued to state that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards. This statement may be in reaction to Facebook’s failed attempt to create a global, non-sovereign currency, once called Libra, and now re-animated as Diem – a scaled down digital currency attempting to commence as a digital dollar.
The G& says they are committed to international cooperation to ensure common standards, including by supporting international standard setting bodies in reviewing existing regulatory standards, and emphasize the importance of addressing any identified gaps.
“We support the FSB’s ongoing work in reviewing regulatory, supervisory and oversight challenges to the implementation of its High Level Recommendations for global stablecoin arrangements. We continue to support the ambitious implementation of the G20 Roadmap to enhance cross–border payments and welcome the publication of the FSB consultation on Targets for Addressing the Four Challenges of Cross-border Payments.”
Of note is a statement in support of the Financial Action Task Force (FATF) standards for stopping money laundering and illicit activity in the global financial system. The G7 states that implementation of standards remains “uneven” and calls on members, along with “FATF-Style Regional Bodies” to step things up in the battle with money laundering. While not mentioning crypto by name, digital assets are included in the FATF standards – most recently the requirements as outlined in the “Travel Rule” that compels VASPs (virtual asset service providers) to maintain buyer and seller records in just about all crypto transactions.