The Bank of International Settlements (BIS) is signaling to central banks that they must prepare for the advent of central bank digital currencies (CBDC).

“Central bank money will have to evolve to be fit for the digital future,” Benoît Cœuré, head of the BIS Innovation Hub, said during a speech on Friday at the Eurofi Financial Forum in Ljubljana, Slovenia.

Cœuré dedicated his closing speech at the forum to discussing the role of central banks in the rollout of CBDCs and the challenges global stablecoins – cryptocurrencies linked to real world assets like the U.S. dollar – and decentralized finance (DeFi) platforms will set for existing banking models.

“We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design. CBDCs will take years to be rolled out, while stablecoins and crypto assets are already here. This makes it even more urgent to start,” Cœuré said.

The speech came just a week after BIS announced it was working with central banks in Singapore, South Africa, Australia and Malaysia to test the efficiency of CBDCs in cross-border payments. Meanwhile, the European Central Bank (ECB) is preparing for a two-year investigation into a digital euro, set to kick off in October.

Crypto assets and distributed ledger technology (DLT) were also recognized as financial innovations that need deeper analysis and potential policy responses by the European Securities and Markets Authority (ESMA) in its risk analysis report for 2021.

Cœuré said these new developments come with different regulatory questions that require “fast and consistent” answers. He added that, through all this, central banks still have a job to do: deliver price and financial stability.

“And they must retain their ability to do it,” Cœuré said

Cœuré's speech reinforced global regulators’ growing apprehension towards stablecoins and DeFi solutions.

According to ESMA’s risk report, regulators’ nervousness stems from the potential impact mass stablecoin adoption could have on existing financial systems, particularly in the wake of stablecoin issuer Tether revealing that almost half of its reserves were made up of unspecified commercial paper.

“Global stablecoins, DeFi platforms and big tech firms will challenge banks’ models,” Cœuré said.

Cœuré also said that central banks need to consider a number of implications including how public and private money should coexist in new ecosystems, and if central bank money, for instance, should be used in DeFi rather than private stablecoins.

“Stablecoins may develop as closed ecosystems or ‘walled gardens,’ creating fragmentation. With DeFi protocols, any concerns about the assets underlying stablecoins could see contagion spread through a system,” Cœuré said.

CBDCs are part of the solution to these concerns, he said, explaining that central banks must seriously consider consumer use cases, public policy objectives and technology when preparing to issue a digital currency.

A CBDC must meet expectations of users (in terms of usability and security), protect privacy and data, and improve financial inclusion among other things, Cœuré said. Central banks must also weigh different design choices that prioritize ease of use, low cost, convertibility, instant settlement and continuous availability along with resilience, flexibility and safety.

According to Cœuré, central banks around the world are coming together to work on CBDCs.

“A CBDC’s goal is ultimately to preserve the best elements of our current systems while still allowing a safe space for tomorrow’s innovation. To do so, central banks have to act while the current system is still in place – and to act now,” Cœuré said.

See also: Stablecoins Are ‘Pretending’ to Be Currencies: ECB’s Lagarde