IMF Cautiously Approves Central Bank Digital Currencies

IMF suggests a range of risks and benefits to central bank digital currencies

International Monetary Fund announces

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The IMF has recently recommended to central banks worldwide to explore the introduction of Central Bank Digital Currencies, but to proceed with caution.

CBDC Could Prove Useful to Central Banks

In its most recent weekly blog post, the IMF has suggested that CBDC have a number of benefits. These include reducing the cost of managing monetary policy and helping the unbanked get included in the financial system from which legacy banking has excluded them.

Interestingly, the organization suggested that “Some central banks are concerned by the increasing concentration of the payment system in the hands of few very large companies (some of which are foreign). In this context, some central banks view CBDC as a means to enhance the resilience of their payment system.”    

The Washington-based organization has had a colorful relationship with cryptocurrencies, with one-time managing director Christine Lagarde suggesting authorities “fight fire with fire” in pursuing cryptocurrency crime. She was later to speak to the benefits of crypto assets. The International Monetary Fund has a new chief in Bulgarian economist Kristalina Georgieva.

Proceed With Caution

However, the 189 member-country organization has warned central banks to proceed with caution, outlining various risks of issuing central bank digital currencies. Among them, the most prominent are risks to the banking systems within countries. As the IMF says, “Deposits could be withdrawn from commercial banks, should people decide to hold CBDC in significant volume.”

Noting an increase in central bank interest since Facebook’s Libra announcement, the IMF now sees centrally issued cryptocurrencies as having the potential to play a positive role in economic life and monetary policy management. Its previous position on existing cryptocurrencies was far less positive, as Crypto Briefing reported.

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