The Bank for International Settlements (BIS) has issued a stark warning about the potential for fragmentation and the risk of dominance by private companies within the emerging metaverse, highlighting the crucial role of public policy in securing the future of this digital ecosystem.
In a comprehensive report published on February 7, the watchdog highlighted how the metaverse’s promise of an economic revolution in sectors such as gaming, e-commerce and education could be at risk without strategic oversight to ensure fair access, data privacy and robust consumer protections to ensure. .
Furthermore, the BIS called for a joint effort among global regulators, central banks and policymakers to develop regulations that promote innovation, protect users and maintain the integrity of digital transactions.
According to the BIS:
“The rise 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 that the metaverse “remains an open, interoperable platform, free from the control of any single entity.”
Risks of dominance
The BIS report delves deeper into the implications of services in the metaverse, covering several 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 companies.
The report calls for more efficient and interoperable payment systems that can meet user demands, highlighting the importance of central banks and financial regulators in understanding and influencing the choice of payment instruments across the metaverse.
The BIS proposes to strengthen efforts to promote interoperability between payment systems to avoid fragmentation and ensure that the metaverse remains a competitive, inclusive platform. This approach aims to avoid a scenario where the digital space is dominated by a few large entities, potentially hindering innovation and limiting access.
The focus is on the need for a regulatory framework that supports efficient payments, data privacy, digital ownership and consumer protection, promoting a fairer and more accessible digital economy.
The role of CBDCs
The BIS report also positions CBDCs as a crucial element in the development of the metaverse’s financial infrastructure, highlighting their potential to provide secure, efficient and interoperable payment solutions that could have a significant impact on the economic and regulatory landscape of virtual environments.
The document notes that more central banks are exploring the design of CBDCs, with several pilots going live. A distinction is made between retail CBDCs, which would be directly accessible to households and businesses (potentially with services provided by banks and non-bank digital wallet providers), and wholesale CBDCs, which are limited to financial institutions and tokenized deposits and the tokenization of real and financial assets.
Significant emphasis is being placed on the potential of CBDCs to enable much faster and cheaper cross-border payments, improving the current correspondent banking system. This could be especially important for the metaverse, where users are likely based in multiple jurisdictions. Multi-CBDC schemes could enable faster, more cost-efficient transactions between different users’ fiat currencies.
The report cites projects like mBridge and Icebreaker as initiatives exploring the feasibility and promise of shared platforms for cross-border, multi-currency payments, highlighting the potential for CBDCs to improve payment systems across the metaverse.
The report states that while cryptocurrencies and other tokens have been proposed by many metaverse application promoters, retail fast payment systems (FPS), CBDCs or tokenized deposits could fill a similar role.
The watchdog stressed the importance of government agencies deciding which tools will be most used and ensuring that new virtual worlds support competition, interoperability, consumer protection and data privacy principles.