The International Monetary Fund (IMF) has put out a report showing that close to 80% of the world’s central banks are either not allowed to issue a central bank digital currency under existing laws, or the legal framework is not clear.
The report lists only about 40 countries legally allowed to issue digital currencies, out of which, 5 are African-based.
In order to issue a digital currency, a detailed analysis of the functions and powers of each central bank, as well as the implications of different designs of digital instruments in each jurisdiction, was reviewed.
The paper looked at the different laws and regulations in order to build a case for digital currencies in each jurisdiction. These include:
The digital currency can easily be received and used by the majority of the population – similar to banknotes and coins
The digital infrastructure is in place – laptops, smartphones, connectivity exist without imposing these on the citizens
The legal implications of the main concepts being considered – account-based or token-based and how the balances currently held on central banks books are digitized or how the token is designed without connecting it to commercial banks
Whether the digital currency is to be used only at the “wholesale” level, by financial institutions, or could be accessible to the general public (“retail”) – Only 10 central banks globally are currently legally allowed to offer private citizens’ accounts
The report concludes by pointing out the huge legal hurdle that will have to be overcome by central banks before creating central bank digital currencies:
“The creation of central bank digital currencies will also raise legal issues in many other areas, including tax, property, contracts, and insolvency laws; payments systems; privacy and data protection; most fundamentally, preventing money laundering and terrorism financing.
If they are to be “the next milestone in the evolution of money,” central bank digital currencies need robust legal foundations that ensure smooth integration to the financial system, credibility and broad acceptance by countries’ citizens and economic agents.”