Digital Currencies Digital Policy Economy & Business International Financial Institutions


January 19, 2024

The IMF’s perspective on CBDCs

By Tobias Adrian

New forms of money and new technologies have the potential to improve payment systems, enhance financial inclusion, and facilitate cross-border payments. In particular, central bank digital currencies (CBDCs) have gained significant attention, with approximately 60 percent of countries exploring their potential. The IMF has a unique view across these efforts and we have done our own exploration of CBDCs’ potential—including the publication of the new CBDC Virtual Handbook that provides guidance to countries exploring the topic. In this post, based on remarks I made at the Atlantic Council’s conference in November, I describe some of the key issues around CBDCs as the Fund sees them.

CBDCs may have various benefits, such as replacing cash in island economies, enhancing resilience in more advanced economies, and improving financial inclusion. The tokenization of financial assets, such as bonds issued on blockchains, opens doors for CBDCs to be used in wholesale forms of payment.

Efforts to enhance cross-border payments have also gained momentum. Sending funds across jurisdictions is still too expensive, slow, and limited in availability. Cross-border payments must be improved for the sake of users, inclusion, and business efficiency. The cost of inaction on this front may include fragmentation in capital flows and compliance with international standards, as well as diminished effectiveness of policies for monetary and financial stability.

While resources are allocated to near-term improvements, it is important to explore medium-term solutions that leverage new technologies. This could include infrastructure based on blockchain technology to facilitate settlement (not just clearing) of cross-border payments and to manage risks and information flows through programming of basic financial contracts and encryption. This infrastructure (“cross-border platforms”) could facilitate the exchange of CBDCs in wholesale or retail form, interface with traditional forms of money, provide FX conversion, and manage payment risks. The use cases could be both small- and large-value payments.

The role of the public sector in developing new platforms would be key. While the private sector is actively piloting and testing the transfer of on-chain financial assets, the public sector should actively investigate and establish desirable features to support policy objectives. These objectives encompass operational efficiency and stability; market contestability and integration; innovation; and applicability to both large- and small-value payments in the context of financial inclusion. Other areas of focus include effective monitoring; data integrity and privacy; implementation of domestic macro-financial policies; monetary sovereignty and financial stability; limited spillover effects; evenhandedness; and fair representation, among others.

Solid governance and oversight will also be needed for these infrastructures to ensure they are aligned with policy objectives and that the infrastructure and participants are compliant with rules and standards. Indeed, this will be key as trust in ensuring that compliance checks are appropriate is fundamental to safeguarding financial integrity. An important question is who will be responsible for the application of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures and for monitoring compliance. Other challenges will include determining the jurisdictional domicile of the platform, ensuring coherence of legal requirements of participating jurisdictions, as well as addressing legal uncertainties including smart contracts, data protection, and roles and responsibilities of operating and oversight bodies.

There should be no presumption that platforms are necessarily desirable, nor of who should build and operate them—whether the public or private sector. To the extent the private sector is involved and pursues its own interests, platforms should still be designed to facilitate the payment and financial needs of the underserved, to the extent they are compliant with rules and standards.

New technologies like programmability and encryption offer new functionalities that could increase efficiencies and help develop new solutions and business models. Competition from purely private solutions (including stablecoins and crypto assets) pushes the public sector to improve infrastructures and services and to counter the forces of fragmentation that could undermine the International Monetary System. Collaboration among international institutions, central banks, and ministries of finance is crucial in providing guidance and setting design contours for cross-border platforms. The IMF is committed to playing its part in this collaborative effort.

Tobias Adrian is a guest contributor to the GeoEconomics Center and IMF Financial Counsellor and Director of the Monetary and Capital Markets Department.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

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