Key takeaways:
- The IMF is developing a global network for the exchange of CBDCs in order to avoid economic fragmentation.
- At present, 114 central banks are investigating CBDCs, with several nearing implementation.
Central Bank Digital Currencies (CBDCs) have been gaining traction worldwide as nations explore the potential benefits of digitising their national currencies. In a groundbreaking move, the International Monetary Fund (IMF) has recently announced its plans to develop a global platform for CBDCs.
This initiative aims to foster international cooperation, standardisation, and interoperability among different digital currencies issued by central banks around the world.
According to Reuters, the International Monetary Fund is creating a global platform to improve CBDC interoperability. The platform, according to IMF Managing Director Kristalina Georgieva, will facilitate transactions between two countries when it is officially deployed.
“CBDCs should not be fragmented national propositions… To have more efficient and equitable transactions, we need systems that connect countries: we need interoperability,” Georgieva said at an African central bank conference in Rabat, Morocco.
The objective is to enable global interoperability among CBDCs and prevent a potential void that could be filled by cryptocurrencies. With 114 central banks currently exploring CBDCs, some nearing implementation, the IMF recognizes the transformative potential of CBDCs in promoting financial inclusion, reducing remittance costs, and emphasizes the importance of asset-backed CBDCs.
IMF Managing Director Kristalina Georgieva has emphasized the need for CBDCs to be asset-backed. Asset-backed CBDCs are backed by reserves such as gold or foreign currencies, providing stability and confidence in the digital currency. By ensuring that CBDCs are backed by tangible assets, the IMF aims to maintain the trust of individuals, businesses, and financial institutions in the value and reliability of CBDCs.
In addition to the IMF’s efforts, the Bank of England and the Bank for International Settlements (BIS) recently introduced a joint initiative to explore CBDCs. This initiative aims to foster international collaboration and knowledge-sharing among central banks in the development of CBDCs.
By working together, central banks can leverage shared insights and experiences to develop effective CBDC frameworks and enhance global financial stability.
An official from the International Monetary Fund said on Monday that new platforms for cross-border central bank digital currencies (CBDCs) might be more effective and secure while still guaranteeing that nations can implement compliance checks and capital controls.
Tobias Adrian, director of the IMF’s monetary and capital markets section, believes that a worldwide CBDC platform that allows for capital restrictions might reduce payment costs. However, such a concept is far different from the decentralised financial systems that cryptocurrency enthusiasts envision.
