The International Monetary Fund (IMF) has put out a report ascertaining the list of countries that are legally allowed to issue digital currencies.
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Among these 14 countries are 5 African Countries. These Africa countries include:
- Eswatini (Swaziland) – E-lilangeni
- Ghana – E-cedi
- Madagascar – eAriary Project
- Tunisia – E-dinar
- South Africa – Electronic Legal Tender
The report highlighted that the report was created to specify the requirements that need to be met in order to issue a digital currency. About 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.
This paper is structured as follows.
- The first section will briefly present definitions, the concept and design features of CBDC, and lay down the key legal implications.
- The next two sections will discuss in detail the central bank and monetary law aspects of CBDCs respectively.
- A final section will conclude Draft sample legislation aimed at providing a sound legal basis to CBDC under central bank and monetary law is included in the annex.
CBDC: THE CONCEPT, DESIGN FEATURES AND LEGAL IMPLICATIONS
A brief Introduction to CBDC ( Central Bank Digital Currency)
There has been lively debate on the merits of CBDC, no widely acceptable definition of CBDC has yet emerged. Even though the definition of CBDC is not yet settled, a key distinctive feature of CBDC is that it is digital. Over the past few years, the CPMI and IMF staff have provided some guidance on key features and a definition of CBDC.
- The CPMI highlighted that “CBDC is not a well-defined term. It is used to refer to a number of concepts. However, it is envisioned by most to be a new form of central bank money. That is, a central bank liability, denominated in an existing unit of account, which serves both as a medium of exchange and a store of value.
- In the above-referenced SDN, IMF staff defined CBDC as “a new form of money, issued digitally by the central bank and intended to serve as legal tender.
The paper examines the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. In the absence of strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks.
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While the appropriate design of the legal framework sometimes depends on the design features of the CBDC, some general conclusions can be made.
- Firstly, most central bank laws do not currently authorize the issuance of CBDC to the general public.
- Secondly, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC.
While the central bank law issue can be solved through rather straightforward law reform, the monetary law issue poses fundamental legal policy challenges.
The 51 paged report was concluded by stating the legal obstacles that will have to be solved 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.”
The international Monetary Fund (IMF)
“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 has to be reviewed.”
