While the Federal Reserve is not convinced about the launch of a Central Bank Digital Currency, the IMF’s view is rather optimistic about possible future implementations.
Central banks exploring CBDCs
The United States Federal Reserve appears to be inclined towards not issuing a Central Bank Digital Currency (CBDC) in the near future, according to a report published by Bank of America on November 15. However, it should be noted that several central banks worldwide are actively exploring the possibility of CBDCs, with 33% of them having already reached advanced stages of the project development.
The report highlights that 67% of the world’s central banks, representing 98% of the global Gross Domestic Product, are considering the adoption of CBDCs. These would represent a digitized version of a state’s traditional currency, issued directly by the central bank.
The stance of the Federal Reserve and BofA
As for the Federal Reserve’s stance, the institution continues to study CBDCs but has not yet made a concrete commitment to their development. However, the Bank emphasizes that any decision on the matter will require the support of the executive branch and Congress.
Studying the specific design and issuing method, the actual implementation of a CBDC could bring several benefits. According to the Bank of America, CBDCs could lead to a more efficient and less costly payment system for both domestic and international transactions, a tool for implementing monetary policy, and progress towards financial inclusion. However, there are also potential risks, including competition with bank deposits, a potential increase in banking crises, the loss of monetary sovereignty, and the creation of tensions between different countries globally.
The role of governments and central banks in digital asset innovation
Central banks and governments will have a pivotal role in digital asset innovation, being able to count on the collaboration of the private sector during all stages of CBDC implementation. In a speech at the Singapore FinTech Festival, the General Director of the International Monetary Fund (IMF), Kristalina Georgieva, encouraged the public sector to “prepare for the implementation” of Central Bank Digital Currencies and their respective payment platforms in the future.
IMF’s views
Although Georgieva is optimistic about the implementation of CBDCs globally, she admits that “we have not yet crossed the finish line” and that there is still much uncertainty. According to Georgieva, CBDCs can replace cash, offer resilience in advanced economies, and improve financial inclusion in the underbanked communities. Georgieva also emphasizes the importance of technological infrastructure, the protection of personal data, and the possible role of artificial intelligence in promoting the spread of CBDCs. Lastly, she highlights the emphasis on facilitating cross-border payments through CBDCs, which at present are costly, slow, and accessible to few.
