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Legally Speaking, is Digital Money Really Money?

Countries are moving fast toward creating digital currencies. Or, so we hear from various surveys showing an increasing number of central banks making substantial progress towards having an official digital currency.


But, in fact, close to 80 percent of the world’s central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is not clear.



Not just a legal technicality

Any money issuance is a form of debt for the central bank, so it must have a solid basis to avoid legal, financial and reputational risks for the institutions. Ultimately, it is about ensuring that a significant and potentially contentious innovation is in line with a central bank’s mandate. Otherwise, the door is opened to potential political and legal challenges.


Now, readers may be asking themselves: if issuing money is the most basic function for any central bank, why then is a digital form of money so different? The answer requires a detailed analysis of the functions and powers of each central bank, as well as the implications of different designs of digital instruments.


Building a case for digital currencies

To legally qualify as currency, a means of payment must be considered as such by the country’s laws and be denominated in its official monetary unit. A currency typically enjoys legal tender status, meaning debtors can pay their obligations by transferring it to creditors.