Central Bank Digital Currency Development Enters the Next Phase


Central bank digital currencies can improve payment systems as well as
financial inclusion—if they are appropriately designed. If not, they could
pose risks.

While not all countries may see an immediate case to deploy a CBDC, many
countries are exploring CBDCs so they will have the option to introduce one
in the future if it becomes pertinent for them. Benefits are more likely to
come in time, following the policies pursued by countries and the private
sector’s response, as well as the evolution of technology.

In most cases, it would be useful for countries to continue exploring CBDC,
carefully and systematically, as IMF Managing Director Kristalina Georgieva
noted in her recent

speech

at the Singapore Fintech Festival.

The Bahamas, Jamaica, and Nigeria have already introduced CBDCs. And more
than 100 countries are in the exploration stage. Central bankers in Brazil,
China, the euro area, India, and the United Kingdom are at the forefront.

The IMF recently launched a virtual

CBDC Virtual Handbook
 to collect and share knowledge with policymakers around the world, and to
serve as a basis for the IMF’s engagement with country authorities. We
intend this to be a living document that will be updated and expanded as
our body of knowledge and analysis grows, and as new lessons and insights
emerge from countries.

The chapters published so far cover process and policy topics:


How Should Central Banks Explore Central Bank Digital Currency?
 Countries that decide to pursue CBDCs will take different paths,
depending on the degree of digitalization of the economy, the legal and
regulatory frameworks, and the central bank’s capacity. We propose a
dynamic decision-making process in which central banks can proceed
despite uncertainty, and adjust the pace, scale, and scope of their
initiatives in response to changes in domestic and international
conditions.


A Guide to Central Bank Digital Currency Product Development
. To help guide central banks in exploring and developing CBDC, we’ve
established a step-by-step guide to address the complex requirements
and risks associated with CBDCs. We call it the 5P methodology:
preparation, proof-of-concept, prototypes, pilots, and production.


Implications of Central Bank Digital Currencies for Monetary Policy
Transmission
. We analyze how CBDCs would likely affect monetary policy. In general,
policy transmission is not expected to be affected much under normal
circumstances, but the effects can be more significant in an
environment with low interest rates or financial market stress.


Implementing capital flow management measures with CBDC
. We explain how CBDCs could be designed to facilitate cross-border
payments while still managing capital flows. With new digital
technologies that can make payment infrastructure programmable, some of
the capital-flow management measures could be implemented more
efficiently and effectively with a CBDC compared to the traditional
approach.


Central Bank Digital Currency’s Role in Promoting Financial
Inclusion
. As a risk-free and widely acceptable form of digital money, with
potentially lower costs and greater accessibility, CBDCs can increase
financial inclusion. If properly designed to replicate some of the
properties of cash, CBDCs could gain acceptance as a payment mechanism
for financially excluded populations—and be an entry point to the
broader formal financial system.

Looking ahead, our engagement with central banks will continue as they
pursue new technologies. We will keep assessing the potential effects of
CBDCs on areas from financial stability to cybersecurity and cross-border
payments and build on these first five chapters with new publications
planned for next year. And we’ll continue our collaboration with other
global bodies, including the Group of Twenty.

The IMF will continue assisting countries exploring CBDCs, along with
efforts by other global bodies like the

Bank for International Settlements
.

 

.



This article was originally published by a www.imf.org . Read the Original article here. .