As part of the ongoing discussion about central bank digital currencies (CBDCs), the International Monetary Fund (IMF) is examining its possible role in future sovereign digital currency issues.
IMF weighs the pros and cons of CBDC
In an analysis published in the IMFBlog at the beginning of December, the IMF discussed its possible role in the emerging CBDC discussion and the pros and cons of sovereign digital currencies.
According to the blog, the IMF has identified three areas where nations that want to launch their own CBDC can be helped. An excerpt from the blog post reads:
“The IMF can help in three ways: by informing the political debate, by convening relevant parties to discuss policy options, and by helping countries develop policies. Given that the CBDC is a new topic, the IMF has been primarily active in the first two areas, but is gradually moving to the third area as member countries consider the CBDC’s options and seek advice. “
Regarding the CBDC itself, the IMF argues that sovereign digital currencies have some advantages – despite disadvantages such as disintermediation in the banking sector and the impact on international politics.
According to the blog, benefits include reducing currency operations costs and promoting greater financial integration. The IMF also notes that the CBDCs will be a robust counterpart to private cryptocurrencies.
For the IMF, the proliferation of these private crypto projects poses credible risks to the integrity of nations’ financial infrastructure. Several commentators from mainstream finance circles denounce projects like Libra due to similar concerns.
Agustin Carsten, head of the Bank for International Settlements (BIS), said in early December that central banks are at risk of losing their importance in private cryptocurrencies. A former head of the Chinese central bank even argued earlier this year that Libra would work better under IMF control.
Will 2020 be the year of the CBDC wars?
As with other comments on CBDCs, the IMF links the upswing in activities around sovereign digital currencies with Facebook’s Libra. Since the publication of the Libra white paper and the creation of the Libra Association, some central banks have started to accelerate their CBDC plans.
Some are already predicting an intense CBDC race that will characterize the crypto discourse for 2020. Countries like China, Sweden, Lithuania and a growing pool of nations have already started exploring CBDC options.
While the US has so far stayed out of the CBDC debate, several government actors in Europe are pushing for a concerted effort to introduce a regional digital currency in the hope of preventing a Chinese monopoly on the CBDC scene.