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Chilean Digital Peso Would Need to Work Offline, Central Bank Governor Says

by CBDC Insider
May 10, 2022
in Business, South America
Reading Time: 3min read
0
Chilean Digital Peso Would Need to Work Offline, Central Bank Governor Says

Banknotes of 1000 Chilean pesos. Currency of Chile.

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Chile’s central bank digital currency (CBDC) would need to accept offline payments, the central bank governor said at an event on Tuesday. Governor Rosanna Costa promised a policy paper on the topic later this week, but added that no final decision had been taken on whether to issue a digital form of the Chilean peso.

A recent BIS survey suggests that 9 out of 10 central banks are considering issuing their own virtual assets, in part due to competition from the likes of bitcoin, but they are grappling with design issues to ensure access and privacy.

The CBDC should “should operate both online and offline,” Costa said at an event hosted by the Swiss national bank, adding that the technology to do so was “not necessarily efficient today.”

The system should “allow the authorities to trace the transaction afterwards,” while safeguarding personal data, Costa said.

The CBDC would have to coexist with and be convertible with cash and commercial banks, and be secure, she added, saying that pilot projects could be implemented after further discussions with public and private sectors due later this year.

In jurisdictions such as the European Union (EU), officials are considering how to balance ability to make discreet cash-like transactions with the need to track illicit finance – and are considering offering more private means of payment for small purchases. Ghana has also considered making its CBDC available offline.

Others think the issue is a waste of time, and that central banks should be focusing on areas where payments are now difficult.

“We are barking up the wrong tree with retail CBDCs,” Ravi Menon of the Monetary Authority of Singapore told the event, arguing that existing payment networks were enough to deal with the needs of ordinary citizens.

“The tree we should be barking up is wholesale CBDCs for cross border payments,” Menon added, implying that banks could make big international transactions without to traditional tools like correspondent banking system and SWIFT messaging service, which he called “laborious” and “archaic.”

International standard setters have been broadly supportive of moves to issue CBDCs, but worried they might mean central banks lose their power to tell citizens what to do with their money.

“In many countries with weak institutions, citizens might have incentives to move money out of the country,” said Tobias Adrian, director of the IMF’s Monetary and Capital Markets department. “The vast majority of countries have some forms of capital controls and there’s both direct and anecdotal evidence that crypto assets are used for that.”

The IMF recently said countries should extend their laws to ensure measures such as restrictions on overseas payments include crypto assets.

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