The IMF has begun to consider the potential for central bank digital currencies (CBDC), as well as the implications of such a move.
The latest staff discussion document titled Fintech and Financial Services: Initial Considerations highlights the evolution of cross-border payment technology and its potential to change the way central banks issue currency.
In an appendix, the international financial organisations sets about asking why a central bank would want to issue a CBDC, and how they might go about doing so.
Why?
The primary reason for issuing a CBDC would be efficiency with regards to insuring effective payments infrastructures that can handle the twin responsibilities of issuing currency and being the lender of last resort.
However, a bank would need to show that CBDCs would providing greater efficiency gains then stepping up regulation of the payments industry.
There is an argument that CBDCs could overcome the “coordination failure of inability to agree on a new technological standard for electronic payments”.
There would also likely be long term savings from the gradual replacement of notes and coins with a CBDC, freeing the state from the costs of maintenance.
The document states:
“It may also significantly reduce transactions costs for individuals and small enterprises that have little or costly access to banking services in some countries or regions; and it may facilitate financial inclusion.”
The second reason would be monetary. CBDCs could act to forestall the proliferation of private virtual currencies, or relegate them to a secondary role in the payments system.
How?
It is likely that CBDCs would differ from fiat currency in the following ways;
“Access would not need to be confined to commercial banks; the fees on CBDC transfers may differ from one category of transaction and holder to another; there might be a minimum or maximum size of balances or of transfers; and interest may or may not be paid on the CBDC. Identifying holders of CBDC could be challenging. These diverse design features of a CBDC may be complements or substitutes to each other.”
Among the substantial issues highlighted in the document, the question of what technology would be used to support CBDCs is going to be key one:
“Existing settlement systems are exposed to single point of failure risk. A CBDC could be more secure as the ledger would exist in multiple copies. RTGS, however, has been designed for large value transactions, on uniform terms, among a well-defined set of “permissioned” banks.”
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