The International Monetary Fund (IMF) is working on a handbook to guide its member countries on how to design and implement Central Bank Digital Currencies (CBDCs). CBDCs are digital forms of money issued by central banks that can be used for payments and transactions by the general public. CBDCs have the potential to enhance financial inclusion, efficiency, and stability, but also pose significant challenges and risks.
Central bank digital currencies (CBDCs) are a new form of money that is issued by central banks and can be used by the general public as a means of payment, store of value, and unit of account. CBDCs are different from traditional cash or bank deposits, as they are digital tokens that can be transferred electronically without intermediaries.
CBDCs have attracted a lot of attention in recent years, as more than 40 countries have approached the International Monetary Fund (IMF) to request assistance through CBDC capacity development (CD). The IMF has been working with these countries to help them assess the potential benefits and risks of CBDCs, as well as to provide guidance on how to design and implement them effectively.
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One of the key questions that the IMF handbook will address is how CBDCs can facilitate cross-border transactions between countries. Currently, cross-border payments are slow, costly, and opaque, especially for low-income and developing countries. CBDCs could offer a faster, cheaper, and more transparent alternative, but also raise complex issues related to monetary policy, financial integrity, cybersecurity, and legal frameworks.
The IMF handbook will draw on the experiences and lessons learned from the few countries that have already launched or piloted CBDCs, such as Nigeria, Bahamas, China, Sweden, and Uruguay. The handbook will also explore different models and architectures for CBDCs, such as wholesale versus retail, account-based versus token-based, centralized versus decentralized, and interoperable versus standalone.
Enhancing financial inclusion by providing access to digital payments for the unbanked and underbanked populations.
Improving efficiency and reducing costs of cross-border payments by facilitating interoperability and reducing frictions.
Supporting innovation and competition in the financial sector by enabling new business models and services based on CBDCs.
Strengthening monetary policy transmission and financial stability by providing a reliable and secure alternative to volatile private cryptocurrencies.
Some of the potential risks of CBDCs
Disintermediating commercial banks and disrupting the financial system by reducing their role in money creation and intermediation.
Eroding central bank seigniorage revenue and fiscal space by reducing the demand for cash and increasing the cost of issuing CBDCs.
Exposing central banks to operational and cyber risks by requiring them to manage complex IT systems and ensure data privacy and security.
Creating legal and regulatory challenges by raising questions about the legal tender status, taxation, consumer protection, and anti-money laundering aspects of CBDCs.
Given these trade-offs, there is no one-size-fits-all approach to CBDCs. Each country needs to carefully weigh the pros and cons of CBDCs based on their own economic, financial, and institutional circumstances. The IMF is developing a CBDC Handbook that will document emerging lessons, analytical findings, and policy views on various aspects of CBDCs. The Handbook will cover topics such as:
Motivations and objectives for issuing CBDCs
Design features and technological options for CBDCs
Legal and regulatory frameworks for CBDCs
Economic and financial implications of CBDCs
Implementation strategies and challenges for CBDCs
The Handbook will be a living document that will be updated regularly based on new evidence, experience, and feedback from stakeholders. The IMF hopes that the Handbook will serve as a useful reference for policymakers, practitioners, researchers, and anyone interested in learning more about CBDCs.
The IMF expects to publish the handbook by the end of 2023, after extensive consultations with its member countries and other stakeholders. The handbook will serve as a reference for countries that are considering or planning to issue CBDCs, as well as a basis for further research and analysis on this emerging topic.