IMF Releases Digital Currency Handbook for World’s Central Banks

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Central bank digital currencies can push the world away from depending on the U.S. dollar, the organization said.

The International Monetary Fund (IMF) released a handbook for global central banks regarding the development and implementation of central bank digital currencies (CBDCs).

The IMFโ€™s โ€œCentral Bank Digital Currency Virtual Handbookโ€ published last week pointed out that the increased use of CBDCs can โ€œreduce dollarizationโ€ of the global economyโ€”a situation where countries move away from relying on the U.S. dollar as a reserve currency. De-dollarization would push up borrowing costs in the United States, making loans expensive for businesses and individuals, thus affecting economic growth. Stock market values can also crash, reducing the savings and investments of Americans.

In addition to de-dollarization, a CBDC โ€œcould increase risks of flight to safety from retail bank deposits in periods of market stress.โ€ During times of market volatility, customers withdraw their deposits and move it into safe assets to avoid losing money in scenarios like bank collapses.

If CBDCs were available, pulling out funds from a bank and putting them in such assets will come across as a safe option for many people, thus triggering a bank run.

The organization pointed out that CBDCs could offer โ€œa safe store of value and efficient means of payment, which can increase competition for deposit funding, raise banksโ€™ share of wholesale funding, and lower bank profits.โ€

The IMF handbook was published as the organizationโ€™s Director Kristalina Georgievaย promotedย the use of CBDCs during the Singapore FinTech Festival on Nov. 15, arguing that such digital currencies could bring an end to the cash-based economy.

โ€œCBDCs can replace cash, which is costly to distribute in island economies,โ€ she said during a speech. โ€œCBDCs would offer a safe and low-cost alternative to cash. They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today, which we can withdraw from our banks.โ€

Back in May, Ms. Georgieva said that the world was heading towards widespread CBDC adoption without considering the risks involved in such a transition.

โ€œWhat we are careful about is the choice between wholesale and retail CBDCs. We think that wholesale CBDCs can be put in place with fairly little space for undesirable surprises. Whereas retail CBDCs, they completely transform the financial system in a way that we donโ€™t quite know what consequences it could bring,โ€ she said during a discussion.

By Naveen Athrappully

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