Central Bank Digital Currencies: These Are The 13 Guiding Principles Set Out By G7 Finance Leaders

G7 finance leaders have said the digital payment ecosystem should be grounded in transparency, the rule of law and sound economic governance

New Delhi: Group of Seven (G7) finance ministers and central bankers have endorsed 13 public policy principles for retail central bank digital currencies (CBDCs), and have said the digital payment ecosystem should be grounded in transparency, the rule of law and sound economic governance.

G7 is an inter-governmental political forum comprising Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

The finance leaders of the G7 met in Washington on Wednesday during the annual meetings of the International Monetary Fund (IMF) and the World Bank under the leadership of British Finance Minister Rishi Sunak.

In their joint statement, which the US treasury department has posted on its website, the G7 officials said central bank money in the form of CBDCs could act as a liquid, safe settlement asset, compleming cash.

"Innovation in digital money and payments has the potential to bring significant benefits but also raises considerable public policy and regulatory issues." 

They added: "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."

The G7 leaders said the 13 guiding principles for CBDCs laid out by them would support policy and design deliberations within and beyond the group, complementing the recently published work by a group of central banks and the Bank for International Settlements.

They clarified that no G7 authority has decided to issue a CBDC, adding that careful consideration of the potential policy implications would continue.

"We reaffirm that any CBDC should be grounded in our long-standing public commitments to transparency, the rule of law and sound economic governance. Any CBDC must support, and ‘do no harm’ to, the ability of central banks to fulfill their mandates for monetary and financial stability."

What Are The 13 Public Policy Principles Endorsed By G7 For CBDCs? 

1. Monetary and financial stability: G7 officials said any CBDC should be designed in such a way that it supports the fulfillment of public policy objectives. It should not impede the central bank’s ability to fulfill its mandate, and “harm” monetary and financial stability.

2. Legal and governance frameworks: G7 wants the IMF and Financial System to guide the design and operation of any CBDC, for observance of transparency, the rule of law, and sound economic governance.

3. Data privacy: The officials called for rigorous standards of privacy and accountability for the protection of user data, and transparency on how information will be secured and used so any CBDC commands trust and confidence. 

4. Operational resilience and cyber security: Any CBDC ecosystem must be “secure and resilient to cyber, fraud and other operational risks” for trusted, durable, and adaptable digital payments.

5. Competition: CBDCs have to coexist with the existing means of payment, and they should be operating in an “open, secure, resilient, transparent and competitive environment that promotes choice and diversity in payment options”.

6. Illicit finance: CBDCs will have to carefully integrate the need for faster and more accessible, safer and cheaper payments, there has to be a commitment to mitigate their use in facilitating any crime.

7. Spillovers: CBDCs need to be designed such that they avoid risks of harm to the “international monetary and financial system, including the monetary sovereignty and financial stability of other countries”.

8. Energy and environment: Any CBDC infrastructure must ensure their energy usage is as efficient as possible so they support the different country’s commitments to transition to a ‘net zero’ economy.

9. Digital economy and innovation: CBDCs must support and act as a catalyst for responsible innovation in the digital economy, and also ensure “interoperability with existing and future payments solutions”.

10. Financial inclusion: CBDCs should contribute to financial inclusion. They should not impede but enhance access to payment services for those underserved or excluded from the existing financial system.

11. Transactions with the private sector: Any CBDC supporting payments between authorities and the public must do so in a fast, inexpensive, transparent, inclusive and safe manner at all times.

12. Cross-border functionality: It needs to be explored how cross-border payments can be enhanced to consider the international dimensions of CBDC design.

13. International development: CBDCs deployed for the provision of international development assistance must safeguard key public policies of the countries issuing and receiving the digital money, at the same time providing adequate transparency about the nature of the design features of the particular CBDCs.