"General-purpose central-bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system, but these are uncharted waters."
The report, submitted by two working groups under the auspices of the Bank for International Settlements (BIS) and European Central Bank (ECB), warns about the "adverse" effect of introducing a CBDC.
The report warns that a cryptocurrency backed by ultra-safe central banks would be too tempting for investors if other assets were losing value in a financial crash.
The BIS report came just before the meeting of G20 representatives, who are scheduled to convene next week in Buenos Aires, Argentina.
More than 1,200 years after the first paper banknotes appeared in China, the use of physical cash is in demise in various countries as digital transactions surge.
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Central banks lend digital currency only to retail banks and to the public in notes and coins so an unofficial fast-transacting cryptocurrency is a looming threat to the monopoly central banks have on the supply and creation of money.
"Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank can not become insolvent".
Opinions about issuing CBDCs diverge greatly. The report states that blockchain or distributed ledger technology (DLT) that carries cryptocurrencies could settle trades of securities and forex more efficient.
In a report, the Bank for International Settlements (BIS) said the launch of crypto currencies by central banks had potential benefits but could also have a detrimental impact, including exposing banking centres to a greater risk of cyber attacks.
So far, no central bank has issued its own digital currency.
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Central bank cryptocurrencies could cause deposits to flow out of traditional banks and endanger the stability of the financial system at the next crash, according to an influential central bank body.
The BIS also highlighted that, like banknotes, digital currencies can fall victim to illegalities - as a direct target or a means of transaction.
"It's clearly a learning curve and regulators across the world have addressed what are the immediate risks created by private digital tokens", Coeure said.
The BIS urged central banks to continue their studies of digital innovations and also consider the implications of not issuing CBDCs.
In separate comments on the report's findings, European Central Bank and BIS executives Benoît Cœuré and Jacqueline Loh said that decentralized digital currency, specifically Bitcoin, was "not the answer to the cashless economy". "The policy issues that this would raise, for central banks and society more generally, need careful consideration".
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