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There’s no universal case for central-bank digital currencies, according to International Monetary Fund Managing Director Kristalina Georgieva, who urged policy makers to carefully weigh trade-offs as financial innovation enters a new phase.
So-called CBDCs could boost financial inclusion in some countries, while providing a secure backup for payment systems in others, Georgieva said. But she cautioned that their design must also take financial-stability and privacy considerations into account to avoid a potential legislative “deal breaker.”
“Policy makers will need to resolve many open questions, technical obstacles, and policy trade-offs,” Georgieva said Wednesday. “If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money” such as “unbacked crypto assets.”
The remarks come alongside the publication of an IMF report on digital currencies, which are being looked at by about 100 countries. Pioneers like the Bahamas and Nigeria have already started allowing the public to use CBDCs, while China is expanding an experiment that already includes more than a hundred million users.
One common strand, she said, is central banks’ commitment to minimizing the impact of CBDCs on the financial system. Active projects studied by her staff -- in the Bahamas, China, and the Eastern Caribbean Currency Union -- involve CBDCs that aren’t interest-bearing, making them less attractive for savings than traditional bank deposits. They also place limits on holdings.
Tobias Adrian, financial counselor of the IMF’s monetary and capital markets department, said developing economies could face the risk of their constituents adopting the digital currencies of foreign nations.
“Dollarization has always been the struggle for countries that are viewed as being unstable,” Adrian said, who also serves as director of the department. So-called dollarization, or a move to adopt the currency of a nation with a larger economy, “could be that much quicker and more dangerous” in a fully-digital world, he said.
(Updates with comments from Adrian in the final two paragraphs.)
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