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Cryptocurrencies

Central banks in Japan and Europe explore digital currencies

Anxiety over Libra and digital yuan prompts joint research

The Bank of England, pictured here, is launching a joint research group into digital currencies with European, Japanese and Canadian central banks.   © Reuters

TOKYO -- Central banks in Japan, Europe and Canada are taking a joint look into issuing digital currencies in their home jurisdictions, hoping to offer a convenient and safe alternative to Facebook's Libra or the digital yuan.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and Sweden's Riksbank, along with the Bank of International Settlements, created a group to assess use cases for digital currency issued by a central bank, the institutions said Tuesday.

These central banks fear that the entrance of digital currencies, such as those planned by Facebook and China, into international settlements will undermine the influence of existing currencies such as the pound, yen and euro.

The U.S. Federal Reserve and the People's Bank of China, which plans its own digital yuan, are not part of this framework, at least for the foreseeable future.

The British and Canadian central banks previously conducted joint research into cross-border uses of such currencies, and decided to share their know-how with more partners.

The new research group will focus on the advantages of digital currencies over existing settlement mechanisms, as well as if and how to apply interest rates to such currencies.

Unlike cash, central bank digital currencies would carry a built-in record of when, where and by whom they were used. But this raises privacy concerns. The research group will discuss how to balance anonymity with efforts to curb money laundering, as well as cyber defenses.

Few of the world's big central banks had plans to issue digital currencies any time soon despite their interest in the field, but Facebook's proposal to launch Libra is pushing them into action.

Central banks control interest rates and money supply to help regulate consumer prices and the economy as a whole. Outside currencies, especially one run by a popular social media platform with over 2 billion users, also could undermine the banks' monetary policies. The Group of Seven and Group of 20 are both enacting regulatory hurdles for Libra.

Developed economies are also concerned about the digital yuan, which will be issued indirectly through banks instead of directly to consumers. The Japanese and Western central banks intend to prevent China from turning the digital yuan into the global currency of choice, and to encourage the U.S. Federal Reserve to put aside its reservations and make inroads into digital currencies.

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