G7 Issues Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs) | Practical Law

G7 Issues Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs) | Practical Law

The Group of Seven Nations (G7) published public policy principles for retail Central Bank Digital Currencies (CBDCs).

G7 Issues Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs)

by Practical Law Finance
Published on 03 Nov 2021USA (National/Federal)
The Group of Seven Nations (G7) published public policy principles for retail Central Bank Digital Currencies (CBDCs).
On October 13, 2021, the Group of Seven Nations (G7), a global forum for central banks, published 13 public policy principles for retail central bank digital currencies (CBDCs). In a joint report, the G7 Finance Ministers and Central Bank Governors released the principles to ensure uniformity and promote international coordination for any public policy and regulatory issues that may arise from this developing system.
Principle 1 suggests all CBDCs must:
  • Be designed in accordance with public policy objectives.
  • Not impede a central bank's fulfillment of its mandate.
  • Not harm monetary and financial stability.
To succeed in fulfilling this principle, there must be sufficient built-in safeguards to protect from risks arising from the adoption of CBDCs.
Principle 2 suggests CBDC designs should be based on G7 values for the international monetary and financial system, including:
  • Rule of law.
  • Economic governance.
  • Appropriate transparency.
Principle 3 calls for strict standards regarding:
  • Privacy.
  • Accountability for protection of user data.
  • Transparency on the security and usage of such data.
This principle focuses on the possibility that CBDC systems will be responsible for handling personal data, and therefore must avoid and be held accountable for any mishandling of such sensitive information.
Principle 4 focuses on achieving a secure and adaptable digital payment system so that all CBDC systems can avoid all types of fraud and other operational risks. This principle also suggests that all CBDC participants create cybersecurity strategies that comply with both national and international standards.
Principle 5 suggests:
  • Coexistence between all CBDCs and traditional forms of payment.
  • Operating CBDCs in a market that promotes competition, as well as diversity of choice in payment options.
  • Subjecting CBDC services to regulatory oversight to protect consumers.
Principle 6 emphasizes the importance of mitigating criminal activity within the CBDC system while also focusing on integrating fast, accessible, and affordable payment options. In doing so, the CBDC system must comply with:
  • Anti-money laundering (AML) requirements.
  • Counter-terrorist financing (CTF) requirements.
  • Counter-proliferation of weapons of mass-destruction regulations.
Principle 7 suggests designing CBDCs to avoid harming international financial systems, such as monetary sovereignty and financial stability in other jurisdictions.
Principle 8 focuses on the CBDC infrastructure's impact on the environment, suggesting a new energy-efficiency standard to promote a 'net zero' economy. G7 suggests future settlement ecosystems should:
  • Use carbon-neutral and sustainable energy sources.
  • Factor energy usage into the design and implementation of all CBDCs.
Principle 9 emphasizes the importance of CBDCs in promoting a responsible digital economy by offering an affordable, fast, and inclusive payment solution. CBDCs must ensure interoperability with other traditional and future payment systems.
Principle 10 focuses on financial inclusion. G7 states all CBDCs must:
  • Enhance access to payment services for underserved communities.
  • Avoid impeding underserved communities by not contributing to sources of exclusion.
Principle 11 states all CBDCs must provide fast, inexpensive, transparent, inclusive, and secure support of payments between authorities and the public.
Principle 12 focuses on cross-border functionality of payment systems. The G7 suggests that CBDC participants should:
  • Create a system that promotes interoperability with cross-border currencies.
  • Work with central banks to enhance cross-border payments by considering the international impact of CBDC system design.
Principle 13 states that all CBDCs used for international development assistance must safeguard key public policies of all participants. The G7 also suggests all issuing authorities of CBDCs must be transparent about the features, designs, and purpose of CBDCs in development assistance.