Can CBDCs be useful? Here's what IMF chief thinks

At a time when central banks around the world are looking at introducing central bank digital currencies (CBDCs), International Monetary Fund (IMF) Managing Director Kristalina Georgieva has said that such currencies can offer more resilience and lower costs than private forms of digital money.
 
In a speech last week, Georgieva said that the world has moved beyond conceptual discussions of CBDCs and is now in the phase of experimentation.
 
"Central banks are rolling up their sleeves and familiarising themselves with the bits and bytes of digital money...we don't quite know how far and how fast they will go. What we know is that central banks are building capacity to harness new technologies - to be ready for what may lie ahead," she said.
 
Back in India, Finance Minister Nirmala Sitharaman, during her Budget speech this month, announced that the Reserve Bank of India (RBI) would be rolling out its digital currency soon.
 
According to IMF estimates, roughly 100 countries are now looking at CBDCs. It published a report last week saying six nations, including China, Sweden and the Bahamas, already have digital currency or are at an advanced stage of having it.
 
In her speech on the report, the IMF chief said, "If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money. That is clearly the case when compared to unbacked crypto assets that are inherently volatile. And even the better managed and regulated stable coins may not be quite a match against a stable and well-designed central bank digital currency."
 
She added that there is "no one-size-fits-all model" for CBDCs as there is no universal case for them because each economy is different.
 
While CBDCs can provide an important path to financial inclusion in some economies, for others, it could provide an essential backup in the event that other payment instruments fail. She called upon the central banks to tailor plans to their specific circumstances and needs.
 
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Besides, she said that financial stability and privacy considerations are paramount to the design of CBDCs. "Central banks are committed to minimising the impact of CBDCs on financial intermediation and credit provision. This is very important for the wheels of the economy to run smoothly."
 
Privacy concerns are a potential deal breaker when it comes to CBDC legislation and adoption, she said, adding that it's vital that policymakers get the mix right.
 
Finally, she said, introducing a CBDC is about finding the delicate balance between developments on the design front and on the policy front.
 
"Getting the design right calls for time and resources, and continuous learning from experience-including shared experiences across countries. In many cases, this will require close partnerships with private firms to successfully distribute CBDCs, build e-wallets, add features, and push the bounds of technology," Georgieva said.
 
However, policy aspects are also paramount, including developing new legal frameworks, new regulations, and new case law.
 
"Taken together, careful design and policy considerations will underpin trust in CBDCs. But let us not forget that trust must be anchored in credible central banks with a history of delivering on their mandates," she said, adding that the success of a CBDC, if and when issued, will depend on sufficient trust.

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