The Bank for International Settlements (BIS) has recently issued a warning about the potential risks of fragmentation and dominance by private firms within the nascent metaverse. The BIS emphasizes the crucial role of public policies in safeguarding the future of this digital ecosystem. In their comprehensive report published on February 7th, the watchdog highlights how the promise of economic revolution in sectors such as gaming, e-commerce, and education may be compromised without strategic oversight.
The BIS report delves into the implications of services in the metaverse, specifically touching on the role of payment services and the challenges and opportunities presented by this new digital ecosystem. One major concern is the potential for fragmentation within the metaverse. The report argues that there is a need for a concerted effort to prevent virtual environments and money from becoming fragmented and dominated by powerful private firms.
To prevent fragmentation and ensure the metaverse remains a competitive and inclusive platform, the report advocates for more efficient and interoperable payment systems. This means that payment systems need to be able to fulfill user demands and be compatible with each other. The report emphasizes the importance of central banks and financial regulators in understanding and influencing the choice of payment instruments within the metaverse.
The BIS suggests reinforcing efforts to promote interoperability among payment systems in order to prevent a scenario where the digital space becomes dominated by a few large entities, potentially stifling innovation and restricting access. An interoperable framework supports efficient payments, data privacy, digital ownership, and consumer protection. This fosters a more equitable and accessible digital economy within the metaverse.
The BIS report also highlights the role of Central Bank Digital Currencies (CBDCs) in ensuring that the metaverse remains an open and interoperable platform, free from the control of any single entity. CBDCs have the potential to provide secure, efficient, and interoperable payment solutions that significantly impact the metaverse’s economic and regulatory landscape.
The report notes that more central banks are exploring the design of CBDCs, with several pilots already going live. It distinguishes between retail CBDCs, which would be directly accessible by households and businesses, and wholesale CBDCs, which are confined to financial institutions. CBDCs have the potential to facilitate faster and cheaper cross-border payments, improving today’s correspondent banking system.
The BIS report emphasizes the importance of public authorities in deciding which payment instruments will be most widely used within the metaverse. It is crucial for governments and regulators to ensure that new virtual worlds support competition, interoperability, consumer protection, and data privacy principles.
Projects like mBridge and Icebreaker are mentioned in the report as initiatives exploring the feasibility and promise of shared platforms for multi-currency cross-border payments within the metaverse. These projects demonstrate the potential for CBDCs to enhance payment systems and facilitate transactions between different fiat currencies.
The BIS report highlights the need for strong public policies and regulations in safeguarding the future of the metaverse. Fragmentation and dominance by private firms pose significant risks that can impede equitable access, data privacy, and robust consumer protections. Interoperable payment systems and the use of CBDCs can play a crucial role in fostering innovation, protecting users, and maintaining the integrity of digital transactions within the metaverse. Public authorities must ensure competition, interoperability, and data privacy principles are upheld to create a more equitable and accessible digital economy.