How safe are CBDCs? From security to policy, these are the risks associated with the issuance of CBDC
The digital currencies of the Central Bank have swept the world; The cryptocurrency landscape has evolved to the point where central banks in several countries now analyze and investigate ways to explore digital innovation.
So much so that the WEF published, what is called ‘The Central Bank's digital currency policy toolkit‘, to help central banks design and launch a digital currency.
Cryptocurrencies like Ethereum, XRP and Bitcoin share a different reason for being. Like these, the WEF toolkit has also proposed different types of CBDC. One of them is the creation of a retail CBDC, one that "would constitute the first digitalized form of money and responsibility of the central bank that the general public could possess."
While retail CBDC has been touted as the ‘next payment frontier’, there are certain risks associated with it. Addressing the same thing, the WEF document emphasized network failures, operational risks, among other things. The document states that it must be protected from physical disruption of systems or infrastructure.
“For all forms of CBDC, given that payments are an integral part of the economy, the central bank and policy makers should try to allow the highest possible level of system availability, implementing safeguards and contingency plans that reduce system interruption risks. The availability of the CBDC system and 24/7 continuous access should be designed to consider people who live beyond the reach of the Internet or who do not have regular Internet access; this is essential for refugees and people living in remote environments «.
In addition, the FEM also stated that central banks should create robust cyber resistance precautions and policies to reduce the risks of cyber attacks. In terms of financial inclusion, the new CBDC implementation should focus on the mass unbanked population. In creating new opportunities, old efficiencies should not represent an obstacle in terms of inclusion for vulnerable populations.
In addition, he said that a CBDC should be profitable for users to support the idea of financial inclusion. The WEF document said:
“The costs related to telecommunications and mobile phones involved in CBDC must be transparent and low to support inclusion. CBDC custody should not rest completely within the mobile phone, so that a customer who loses his phone does not lose his CBDC holdings.