The International Monetary Fund (IMF) is wary of the potential risks of retail central bank digital currencies (CBDCs) despite over 110 central banks exploring their possibilities. The IMF’s Managing Director, Kristalina Georgieva, spoke at the Milken Institute’s annual conference, where she expressed concerns about the impact of retail CBDCs on global financial stability. She warned that while wholesale CBDCs could be introduced with few undesirable surprises, the effects of their retail counterparts on the financial system remain unclear.
Retail CBDCs Could Cause Unforeseeable Consequences
Retail CBDCs, which are meant for use by the general public, have gained traction as a way to curb the rise of stablecoins and “cryptoization” in local economies. However, Georgieva cautioned that the unforeseeable consequences of retail CBDCs could pose a threat to financial stability. In her conversation with Bloomberg’s Stephanie Flanders during the Milken Institute event, she pointed out that several pilots of retail CBDCs are underway, but there is little clarity on their long-term impact.
IMF to Offer Technical Assistance for CBDC Launches
Despite its skepticism, the IMF has offered technical assistance to nearly 50 central banks since 2020 that are interested in launching CBDCs. The organization plans to launch a CBDC handbook to guide central banks on best practices for designing and issuing their own CBDCs. The handbook will offer details on viable frameworks for evaluating CBDCs and empirical findings to help countries make informed decisions when launching their digital currencies.
Central Banks Around the World Explore Retail CBDCs
Several central banks, including the People’s Bank of China, India, Russia, the European Union, Ukraine, Thailand, Sweden, and Uruguay, are among the countries exploring the potential of retail CBDCs. China’s digital yuan is among the closest to a full-scale launch, having expanded its pilot to more provinces in the country. India is experimenting with both retail and wholesale CBDCs and has onboarded thousands of users and merchants in the first stage of its studies.
Public Reception of CBDCs
As the world transitions towards digital payments, the possibility of CBDCs becoming a reality is no longer a far-fetched idea. However, this has raised concerns about privacy invasion and surveillance, causing the public to have mixed feelings towards the adoption of these central bank-issued currencies.
On one hand, proponents of CBDCs argue that it could improve financial inclusion and reduce transaction costs. They believe that this type of digital currency can provide a more secure and efficient way to carry out transactions, especially for people without access to traditional banking services. Additionally, CBDCs could also help in the fight against money laundering and terrorism financing, as every transaction could be traced and monitored by authorities.
On the other hand, opponents of CBDCs argue that it could be a tool for government surveillance and invasion of privacy. This is because, unlike cash, these assets would be completely digital and every transaction could be tracked and monitored by authorities.
Moreover, the implementation of CBDCs could lead to the centralization of financial data, which could be vulnerable to hacking and data breaches. This could potentially lead to sensitive personal and financial information falling into the wrong hands, making people hesitant to adopt them.
The IMF remains skeptical about the potential risks of retail CBDCs and their impact on global financial stability. While several central banks around the world are exploring the possibilities of CBDCs, the unforeseeable consequences of retail CBDCs could pose a threat to financial stability. Despite its skepticism, the IMF has offered technical assistance to central banks interested in launching CBDCs and plans to launch a CBDC handbook.
On the other hand, the adoption of CBDCs has raised concerns about privacy invasion and surveillance, causing the public to have mixed feelings towards their adoption. While proponents argue that these could improve financial inclusion and reduce transaction costs, the opposition argues that they could be a tool for government surveillance and invasion of privacy. With these concerns in mind, it remains to be seen how the world will adopt CBDCs and what kind of impact they will have on global financial systems.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager of a consultancy firm.