BIS raises concerns over future of metaverses, advocates for strong public policy framework
The Bank for International Settlements (BIS) has issued a stark warning about the potential for fragmentation and the risk of dominance by private firms within the nascent metaverse, emphasizing the crucial role of public policies in safeguarding this digital ecosystem’s future.
In a comprehensive report published on Feb. 7, the watchdog highlighted how the metaverse’s promise of economic revolution across sectors such as gaming, e-commerce, and education might be compromised without strategic oversight to ensure equitable access, data privacy, and robust consumer protections.
Additionally, the BIS called for a concerted effort among global regulators, central banks, and policymakers to craft regulations that foster innovation, protect users, and maintain the integrity of digital transactions.
According to the BIS:
“The emergence of the metaverse is a call to action for policymakers to future-proof our digital economies.”
The report also highlights the role of Central Bank Digital Currencies (CBDCs) in ensuring the metaverse “remains an open, interoperable platform, free from the control of any single entity.”
Risks of dominance
The BIS report delves into the implications of services in the metaverse, touching on various aspects, including the role of payment services and the potential challenges and opportunities presented by this new digital ecosystem.
It discusses the potential for fragmentation within the metaverse. It emphasizes the need for a concerted effort to prevent virtual environments and money from becoming fragmented and dominated by powerful private firms.
The report advocates for more efficient and interoperable payment systems that can fulfill user demands, highlighting 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 to prevent fragmentation and ensure the metaverse remains a competitive, inclusive platform. This approach aims to avoid a scenario where the digital space becomes dominated by a few large entities, potentially stifling innovation and restricting access.
The emphasis is on the need for a regulatory framework that supports efficient payments, data privacy, digital ownership, and consumer protection, thereby fostering a more equitable and accessible digital economy.
The role of CBDCs
The BIS report also positions CBDCs as a pivotal element in developing the metaverse’s financial infrastructure, highlighting their potential to provide secure, efficient, and interoperable payment solutions that could significantly impact virtual environments’ economic and regulatory landscape.
The document notes that more central banks are exploring the design of CBDCs, with several pilots going live. It distinguishes between retail CBDCs, which would be directly accessible by households and businesses (potentially with services provided by banks and non-bank digital wallet providers), and wholesale CBDCs, which are confined to financial institutions and could support tokenized deposits and the tokenization of real and financial assets.
A significant emphasis is placed on the potential of CBDCs to facilitate much faster and cheaper cross-border payments, improving today’s correspondent banking system. This could be particularly important for the metaverse, where users are likely based in multiple jurisdictions. Multi-CBDC arrangements could enable faster, more cost-efficient transactions between the fiat currencies of different users.
The report mentions projects like mBridge and Icebreaker as initiatives exploring the feasibility and promise of shared platforms for multi-currency cross-border payments, highlighting the potential for CBDCs to enhance payment systems within the metaverse.
The report argues that while cryptocurrencies and other tokens have been proposed by many promoters of metaverse applications, retail fast payment systems (FPS), CBDCs, or tokenized deposits could fulfill similar roles.
The watchdog emphasized the importance of public authorities deciding which instruments will be most widely used and ensuring that new virtual worlds support competition, interoperability, consumer protection, and data privacy principles.