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UPDATE 2-Central banks join forces to look at future digital currencies

Tue, 21st Jan 2020 12:44

* Major central banks look at issuing digital currencies

* Banks of England and Japan, European Central Bank involved

* U.S. Federal Reserve notable by its absence

* Central banks quickening research on own digital
currencies
(Adds absence of U.S. Federal Reserve)

By Andy Bruce and Francesco Canepa

LONDON/FRANKFURT, Jan 21 (Reuters) - Major central banks are
looking at the case for issuing their own digital currencies,
the Bank of England and European Central Bank said on Tuesday,
amid a growing debate over the future of money and who controls
it.

The central banks of Britain, the euro zone, Japan, Sweden
and Switzerland will share experiences in a new group headed by
former European Central Bank official Benoit Coeure and assisted
by the Bank of International Settlements, they said.

"The group will assess ... economic, functional and
technical design choices, including cross-border
interoperability; and the sharing of knowledge on emerging
technologies," the central banks said in a statement.

The U.S. Federal Reserve was notably absent from the group.

Central banks across the world have quickened the pace with
which they are looking at issuing their own digital currencies,
also known as CBDCs. Facebook's push to launch its Libra
cryptocurrency has added fuel to questions over whether nation
states will continue to control money in the decades ahead.

Of the major central banks, China's has emerged as the
frontrunner in the drive to create its own digitised money,
though details of its project are still scarce.

In the United States, Fed Chairman Jerome Powell said in
November it was monitoring the digital currency debate but not
actively considering its own amid a host of legal, regulatory
and operational questions.

But Philadelphia Federal Reserve bank president Patrick
Harker said a month earlier it was "inevitable" that central
banks, including the Fed, would start issuing digital currency.

Harker cautioned that the United States should not be the
nation to lead such a move.

The Fed did not immediately respond to a request for comment
on Tuesday.

THE COMMON DENOMINATOR?

CBDCs are traditional money, but in digital form, issued and
governed by a country's central bank. By contrast,
cryptocurrencies such as bitcoin are produced by solving complex
maths puzzles, and governed by disparate online communities
instead of a centralised body.

The common denominator is that cryptocurrencies and CBDCs,
to a varying degree, are based on blockchain technology, a
digital ledger that allows transactions to be recorded and
accessed in real time by multiple parties.

Last year BoE Governor Mark Carney took aim at the U.S.
dollar's "destabilising" role in the world economy and said
central banks might need to join together to create their own
replacement reserve currency.

The best solution would be a diversified multi-polar
financial system, something that could be provided by
technology, Carney said.

Facebook's Libra is the most high-profile proposed digital
currency to date but it faces a host of fundamental issues that
it has yet to address, he added.
(Additional reporting by Tom Wilson in London and Pete
Schroeder in Washington
Editing by William Schomberg and Gareth Jones)

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