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IMF Sees No Turning Back on CBDC as Unveils New Handbook

Last Updated November 15, 2023 11:37 AM
Teuta Franjkovic
Last Updated November 15, 2023 11:37 AM

Key Takeaways

  • IMF’s Kristalina Georgieva emphasized the ongoing need for the public sector to be ready to implement CBDCs.
  • Despite advancements, there is still unexplored territory for innovation in this realm.
  • Data from the Atlantic Council reveals only 11 countries have adopted CBDCs.

Central bank digital currencies (CBDCs) are gaining traction as countries explore their potential to revolutionize the financial landscape. Several governments are actively working on CBDC development, recognizing their ability to improve financial inclusion, enhance resilience, and even replace physical cash.

On Wednesday, November 15, Kristalina Georgieva, the Managing Director of the International Monetary Fund, mentioned  that while CBDCs have the capability to replace physical cash, the process of adoption might unfold gradually.

CBDCs as Viable Cash Replacement

Speaking at the Singapore FinTech Festival, Georgieva stated that CBDCs have the potential to replace cash, particularly in island economies where the distribution of physical currency is costly.

Additionally, she highlighted their ability to enhance resilience in more advanced economies and contribute to improved financial inclusion, particularly in regions where a limited number of individuals have traditional bank accounts.

Central Bank Digital Currencies (CBDCs) represent the digital iteration of a nation’s fiat currency and are overseen by the respective country’s central bank. These currencies leverage blockchain technology, enabling central banks to directly disburse government payments to households.

“CBDCs would offer a safe and low-cost alternative [to cash]. They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks,” she asserted .

Over 100 Countries Engaged in CBDC Exploration

The International Monetary Fund (IMF) has reported  that over 100 countries, constituting roughly 60% of the world’s nations, are actively exploring Central Bank Digital Currencies (CBDCs).

Notably, various central banks have initiated pilots or even introduced CBDCs, showcasing an unprecedented global interest, as highlighted in an IMF report  from September.

According to a 2022 survey  by the Bank for International Settlements, 93% of the 86 central banks surveyed expressed their exploration of CBDCs, with 58% indicating the likelihood of issuing a retail CBDC in the short or medium term.

Despite the widespread exploration, data from the Atlantic Council  as of June indicates that only 11 countries have formally adopted CBDCs. An additional 53 countries are in advanced planning stages, and 46 are actively researching the topic.

Georgieva referenced her predecessor Christine Lagarde’s 2018 speech , encouraging policymakers to embrace the “winds of change” and delve into CBDC exploration. Georgieva noted that many countries have indeed embarked on this journey, investigating CBDCs and crafting regulations to guide the development of digital currencies.

In line with these developments, the IMF launched a CBDC handbook  on Wednesday, serving as a comprehensive reference guide for policymakers globally. Georgieva emphasized  that numerous countries are currently in the process of exploring CBDCs and establishing regulatory frameworks to navigate the landscape of digital currency.

“Second, we have not yet reached land. There is so much more space for innovation and so much uncertainty over use-cases.  In some countries the case seems dim today, but even they should remain open to potentially deploy CBDCs tomorrow. Why? This is not the time to turn back,” said  Georgieva.

She added that the preparations for the deployment of CBDCs and associated payment platforms in the future should be continued by the public sector. Additionally, these platforms ought to be purposefully designed to support cross-border payments, including those involving CBDCs.

CBDC Potential Unveiled

Several nations, including the Bahamas , Jamaica , and Nigeria , have introduced retail Central Bank Digital Currencies (CBDCs).

Singapore’s Monetary Authority, in a 2021 report , emphasized that cash is largely incompatible with the digital economy, anticipating a continued decline in demand for cash payments.

The Bank for International Settlements (BIS) suggested  that utilizing CBDCs for cross-border transactions has the potential to reduce the costs associated with acquiring, storing, and spending foreign currencies, contingent on design and regulatory frameworks.

Furthermore, Georgieva highlighted the potential synergy between artificial intelligence and CBDCs, citing the possibility of AI enhancing benefits through precise credit scoring and personalized support.

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