052 – The International Monetary Fund (IMF) is working on a platform for central bank digital currencies (CBDCs) to enable cross-border transactions, said the organization’s managing director, Kristalina Georgieva.
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The IMF wants central banks to agree on a common regulatory framework for digital currencies that would allow global interoperability. “Failure to agree on a common platform would create a vacuum that cryptocurrencies would likely fill,” they said.
A CBDC is a digital currency controlled by the central bank, while cryptocurrencies are, more often than not, decentralized. There are already 114 central banks that are at some stage of CBDC exploration, “with about 10 that have already crossed the finish line,” the European official said.
“If countries develop CBDC only for national deployment, we are underutilizing their capacity,” they added.
CBDCs would also help promote financial inclusion and make remittances cheaper, he said, noting that the average cost of money transfers stands at 6.3%, which is $44 billion annually.
Georgieva stressed that CBDCs must be asset-backed and added that cryptocurrencies are an investment opportunity when they are asset-backed, but when they are not they are a “speculative investment.”
According to CoinDesk media outlet, Tobias Adrian, director of the IMF’s money and capital markets department, believes that a global CBDC platform can reduce the costs of payments, however, it is a vision that is far from the dream of decentralized financial systems enthusiasts.
Recall that less than a month ago the IMF suggested that other countries ban cryptocurrencies, the agency now believes it might be the wrong decision.
IMF economists published a report examining the use of cryptocurrencies in Latin America and the Caribbean. Acceptance has varied across the region, with some countries, such as El Salvador, being more open to adoption than others that are more cautious due to perceived risks. In their report, the economists leaned toward a position that is closer to the adoption of cryptocurrencies, but within a well-regulated framework. And that cryptocurrencies offer protection against macroeconomic uncertainty, promote financial inclusion and faster payments, among other benefits.
They also provided an analysis of recent efforts in Latin America to develop central bank digital currencies (CBDCs).
In a survey shared with officials across the region, the IMF found that half of the respondents said they were considering both retail and institutional CBDC options. What they also saw in CBDCs was a way to promote resilience in communities vulnerable to natural disasters and create a way to boost financial inclusion in more remote ones.
Most Latin American countries are still in the research stage for CBDCs, the IMF wrote, but others have advanced to an experimental stage. The biggest is Brazil, the region’s economic powerhouse. It has been examining CBDCs since 2020 and plans to launch one in 2024.