Per a Reuters report, the International Monetary Fund (IMF) is working towards the launch of a global central bank digital currency (CBDC) platform that can facilitate cross-border transactions.
IMF Takes On CBDC Market
Speaking at a conference attended by African central banks, IMF Managing Director Kristalina Georgieva emphasized the importance of interoperability between countries for more efficient and fairer transactions.
Georgieva said the IMF is working on the concept of a global CBDC platform and urged central banks to agree on a common regulatory framework for digital currencies to allow for global interoperability.
She warned that failure to agree on a common platform would create a “vacuum” that could be filled by cryptocurrencies.
In addition, Georgieva stressed that CBDCs should be backed by assets, adding that cryptocurrencies are an investment opportunity if they are backed by assets, but if they are not, they are a “speculative investment”.
Ultimately, the IMF managing Director noted that central bank digital currencies could promote financial inclusion and make remittances cheaper, as the average cost of money transfers stands at 6.3%, amounting to $44 billion annually.
These can be backed by assets in several ways, depending on the design of the CBDC. One possible way is to have it backed by a reserve of assets, such as gold or foreign currency reserves, that are held by the central bank. This would provide a level of stability and confidence, as it would be backed by tangible assets that have a recognized value.
Another way that CBDCs can be backed by assets is through a system of collateralization. In this system, the CBDC would be backed by a pool of assets, such as government bonds or other forms of securities, that are held as collateral by the central bank.
This would create a system of checks and balances, as the collateral would provide a level of security for the CBDC while also ensuring that the value of the CBDC remains stable.
The IMF’s plan comes as 114 central banks worldwide are already exploring CBDCs, with about 10 having crossed the finish line. Georgieva believes that if countries develop CBDCs only for domestic deployment, their capacity will be underutilized.
Nevertheless, the launch of a global central bank digital currency platform would require the cooperation of central banks worldwide, which may prove to be a challenge. Some central banks have already expressed reservations about CBDCs, citing concerns around financial stability, data privacy, and cybersecurity, among other issues.
The launch of a CBDC platform could potentially revolutionize cross-border transactions, making them more efficient and cost-effective. It could also potentially lead to greater financial inclusion and reduce the cost of remittances, especially in developing countries.
It remains to be seen if central banks worldwide will agree on a common regulatory framework for digital currencies, and whether the IMF’s vision for a global central bank digital currency platform will come to fruition.
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