Around 100 countries are now exploring the potential development and issuance of a central bank digital currency (CBDC), and the challenges and opportunities identified by these research projects reveal a need for “increased international information-sharing of insights learned”, according to an International Monetary Fund (IMF) report.
‘Behind the Scenes of Central Bank Digital Currency: Emerging Trends, Insights and Policy Lessons’ focuses on six CBDC projects at different stages of development and lays out key similarities and differences in relation to overall policy goals, operating models, design features and technology, legal considerations and project implementation.
The research examines projects where a CBDC has already either been launched or is being piloted with the general public — the Bahaman Sand Dollar, the East Caribbean DCash and China’s digital yuan — as well as those at an earlier stage of testing or development such as those initiated by Sweden’s Riksbank, the Central Bank of Uruguay and the Bank of Canada.
The 30-page report compares the different policy goal priorities, such as financial inclusion, access to payments, payments efficiency, resilience, reducing illicit uses of money, monetary sovereignty and competition in each of the six CBDC projects.
It also examines different conceptual models for unilateral, intermediated and synthetic CBDCs, design features such as cross-border payments and anonymity, uses of distributed ledger, centralised or hybrid technologies and the implementation of pilot schemes.
“CBDC exploration is still in an early stage, and not all country experiences can be easily ported abroad,” the report says. “There are still open questions, and CBDC remains an uncharted territory, raising challenges as well as opportunities. Increased international information-sharing of insights learned from individual CBDC projects and cooperation on policy and design issues will be important going forward.”
Overall, the research shows that “if CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability and lower costs than private forms of digital money”, IMF managing director Kristalina Georgieva said at the launch of the report.
“That is clearly the case when compared with 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 central bank digital currency.”
The “common lessons from these central banks from which others may benefit” highlighted in the report are that central banks “should tailor plans to their specific circumstances and needs” because each economy is different; that financial stability and privacy considerations are paramount to the design of CBDCs; and that “introducing a CBDC is about finding the delicate balance between developments on the design front and on the policy front”, Georgieva said.
“Countries are seeking to preserve key aspects of their traditional monetary and financial systems, while experimenting with new digital forms of money,” she added.
“The paper we are releasing today shows that for those experiments to succeed, policymakers need to deal with many open questions, technical obstacles, and policy tradeoffs.
“We are supporting countries in their CBDC experiments — to understand big picture trade-offs, to provide technical assistance, and to serve as a transmission line of learning and best practice across all 190 members. And we are stepping up collaboration with other institutions, such as the Bank for International Settlements, at par with the rapidly growing significance of digital money.”
The full report is available as a free download from the IMF website here.
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