Deal with policy trade-offs to make digital currencies successful: IMF tells CBs

For digital currencies to have wider acceptance, the International Monetary Fund (IMF) said the policymakers must deal with many open questions, technical obstacles and policy trade-offs.

Introducing a central bank digital currency (CBDC) is about finding the delicate balance between developments on the design front and on the policy front, said IMF Managing Director Atlantic Council Kristalina Georgieva this week. 

“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,” said Georgieva addressing a forum this week that brought the future of money under fresh spotlight. 

To successfully introduce digital currencies, nations must get the policy aspect perfected, which includes developing new legal frameworks, new regulations and new case law. 

The introduction of a CBDC also requires prudent planning to satisfy policy targets such as financial inclusion and avoiding undesirable spillovers such as sudden capital outflows that could undermine financial stability, Georgieva added. 

If CBDCs are designed prudently, the IMF expressed confidence in it potentially offering 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 stablecoins may not be quite a match against a stable and well-designed CBDC,”  Georgieva said. 

The days for CBDCs may be early but according to the IMF, central banks are “rolling up their sleeves” and familiarising themselves with the bits and bytes of digital money. 

The IMF is actively engaged in providing technical assistance and serves as a transmission line of learning and best practice across all 190 members. 

The agency is stepping up collaboration with other institutions such as the Bank for International Settlements to support the rapidly growing significance of digital money.

The history of money is entering a new chapter, with digital currencies increasingly becoming popular.