The normalization of digital wallets and digital currency is rapidly occurring. We’re seeing this transformation across the financial industry and expect the trend to accelerate due to changing consumer habits from COVID-19 and large financial entities joining the race to build future money and payment systems. While we can’t be sure on the timing, shifts in technology, taxpayer expectations, and legislative pressure are accelerating change, and it will probably be sooner than expected. Money is rapidly transforming from a physical to a digitally native product. With most central banks pursuing this new form of sovereign currency, societies will soon have a new payment platform to facilitate commerce.
Central banks respond
This digital shift has now reached the sovereign central banks resulting in a race to create a new form of money: central bank digital currency (CBDC). It’s not a matter of if, but when, CBDC will go into production and provide a new payment option for commerce. According to the Bank for International Settlements, 80 percent of central banks are engaging with CBDC work in some way, with 50 percent already in the experimental or pilot phase.i Revenue agencies need to start preparing for when CBDC goes into production by educating decision-makers, and engaging industry thought leaders.
According to the Bank for International Settlements, 80 percent of central banks are engaging with CBDC work in some way, with 50 percent already in the experimental or pilot phase.
What do revenue agencies need to do?
Due to accelerating developments, revenue agencies need to start preparing for digital currency's potential impact on their people, processes, and technology. We recommend using a three-phased approach to prepare for this wave of innovation:
What are digital assets and central bank digital currency?
Who is making decisions regarding digital currency in my jurisdiction?
How will my agency be impacted and required to change?
Making sense of an uncertain future
Education around digital currency, more broadly known as digital assets, is the first key hurdle.
Digital assets are a wide-ranging industry, including cryptoassets, private stablecoins, tokenized securities, consortium currencies, and sovereign central bank digital currencies. These assets are defined by their design and respective characteristics, such as decentralization, underlying technology, and legal rights. Revenue agencies need to remain vigilant as general adoption and regulations around digital assets continue to mature globally.
The involvement of revenue agencies during the design and decision-making phases of CBDCs is essential for any agency to prepare to be accountable for the tax administration of this new form of currency.
Accenture has partnered with the Digital Dollar Foundation to form The Digital Dollar Project to encourage research and public discussion on the potential advantages of a CBDC.
Find out more about the Digital Dollar Project here.
Revenue agencies’ areas of impact for CBDC
Recognizing CBDC emergence and how it will impact how the world does business, revenue agencies across the globe now need to plan for the following areas of impact.
Working with ecosystem partnerships
Understanding digital currency for revenue agencies is complicated and constantly evolving, requiring engagement with public and private partners.
Engaging in taxpayer education and outreach
As digital currency embeds itself into the daily lives of taxpayers, agencies need to educate taxpayers to ensure compliance and reduce taxpayer error.
Understanding business processes and technology
Agencies must understand how cyber risk and digital payments will disrupt their underlying business processes and technological infrastructure.
Building the workforce of the future
As digital adoption grows, revenue agencies must identify their specific workforce needs to meet the new, specialized skills required.
Considering impact on tax administration
Agencies need to consider the ways in which a largely cashless society will affect how they fulfill tax administration.
As with all financial services organizations that directly interact with a significant portion of the global population, revenue agencies have the opportunity to be a leader in the evolution of money by planning for and engaging with CBDCs now, before they are common currency.
It’s not a matter of if, but when, CBDC will go into production and provide a new payment rail for commerce. By learning, engaging, and assessing ahead of time, and by keeping their focus on key areas of impact, agencies can fully understand and play a part in this transformation.
i BIS Papers, No 107 “Impending arrival – a sequel to the survey on central bank digital currency” Codruta Boar, Henry Holden and Amber Wadsworth.