Economy

No one-size-fits-all for central bank digital currencies: IMF study

Roughly 100 countries are now looking at central bank digital currencies, the IMF estimates; China, Sweden and the Bahamas have digital money plans at advanced stage

The International Monetary Fund logo is seen inside its headquarters at the end of the IMF/World Bank annual meetings in Washington, U.S., October 9, 2016. Photo: REUTERS/Yuri Gripas/File Photo

Evidence emerging from the first central bank digital currencies (CBDCs) around the world suggests there is no one-size-fits-all model as stability and privacy are designed into systems, the head of the International Monetary Fund (IMF) has said.

Roughly 100 countries are now looking at CBDCs, the IMF estimates, and it published a study on Wednesday looking at six nations including China, Sweden and the Bahamas where digital money is already up and running or at an advanced stage.

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In a speech on the report, IMF Managing Director Kristalina Georgieva said the main takeaway from these early experiences was that there were a number of lessons to learn.

If CBDCs were designed “prudently” they could potentially offer more resilience, make it easier for people to have access to bank-type services and lower the cost of moving around money.

And they should be safer too, compared to “unbacked cryptoassets that are inherently volatile” as well as better-managed and regulated “stablecoins”, which are generally linked to a fiat currencies or other assets.

“First, no one size fits all,” Georgieva said.

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Second, financial stability and privacy considerations are paramount to the design of CBDCs, while there also needed to be balance between developments on the design front and on the policy front.

“These are still early days for CBDCs and we don’t quite know how far and how fast they will go,” Georgieva added.

The primary reason central banks across the world are studying digital versions of their currencies is to avoid tech and mobile phone giants taking too much control of how money flows and is used, especially with cash usage shrinking.

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China has been at the forefront of CBDC moves and is doing a mass trial at the Winter Olympics now under way in Beijing.

The European Central Bank in July took a first step towards launching a digital version of the euro, kicking off a 24-month investigation phase to be followed by three years of implementation.

The Federal Reserve has been slower to move but last month it took its first step by launching a report and consultation on the introduction of a digital dollar.

A digital dollar could transform the financial system, speeding up payments globally and giving consumers greater access to the financial system, the Fed said. But it cautioned that a poorly designed digital dollar could weaken banks, destabilise the financial system and create privacy issues.

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