The IMF has recently published a report discussing the potential of central bank digital currencies (CBDCs).
There are differences in the way central banks relate to cryptocurrencies, depending on the country. Many have considered the idea of developing their digital currencies, known as “central bank digital currencies” (CBDCs). However, the International Monetary Fund (IMF) recently explained in a report that CBDCs cannot solve all problems despite their potential.
Undoubtedly, central bank digital currencies (CBDCs) can benefit countries seeking to exert greater control over their monetary policy. The IMF explains the real situation of these assets in its recently published report.
What the IMF Report Says about CBDCs
The report mostly assessed the different pros and cons of CBDCs. However, it seems that its main conclusion is that users should see a CBDC as another monetary policy tool, not as the solution for all world economies.
In general, the document indicates that CBDCs do not change the economic forces that drive the international use of currencies. They are just digital forms of existing fiat currencies. However, the authors recognize that CBDCs could strengthen the incentives behind the substitution and internationalization of currencies.
The IMF report also concluded that a CBDC is not a unique solution for all mediocre economies. Besides, it will not save countries with high inflation or similar domestic problems.
Something interesting is that the report created some hypothetical scenarios for the issuance of a CBDC. Some of those scenarios view it as a niche tool only for cross-border payments, while others see it as a tool for currency substitution.
The report even considered a scenario in which people widely adopt a set of CBDCs and use them for both international and domestic transactions.
Benefits that IMF Finds in CBDCs
Of course, one of the main benefits of CBDCs is that they form a digital payment system. However, before countries can issue or adopt them, they should look at the international treaties governing monetary agreements.
In a world where people massively adopt CBDCs, issuing central banks must decide whether it is in their national interests to serve as the lenders of last resort for those countries that use their CBDC extensively.
This could be inconvenient since high external demand could require central banks to expand their monetary policy toolkit. However, the IMF report suggested that it would be possible to reduce this concern by setting certain limits.
Extra Comments
There are also private efforts to launch a stablecoin for international use, but the IMF warns that a truly global stablecoin poses its risks to monetary policy.
This kind of unsupported global stablecoin (GSC) would become a stateless currency. It would be possible to preserve its value through the commitment of big technologies to follow “a credible set of rules and principles”.
A global stablecoin could fulfill the role of a fiat currency in countries with unstable exchange rates or high inflation, the report warned. However, the adoption of a GSC could lead to a world where private companies direct the monetary policy of an asset to which countries would be subject.
For the moment, the IMF report focuses on the development and possibilities of CBDCs, since this debate is just beginning. There will be many alternatives and possibilities for people in the future, but it will be necessary to accept the consequences.
By Alexander Salazar
