– On the IMF approach to Central Bank Digital Currencies (or CBDC) capacity development, knowing how important this topic is to IMF member countries.
By Bo Li
I’d like to focus on three points: first on global interest in CBDC, second on demand for the IMF’s assistance through capacity development, and finally on the IMF approach to CBDC capacity development.
We have seen unprecedented levels of global interest in CBDCs in recent years. Recent surveys provide insights into the widespread exploration of CBDCs and the reasoning behind it. The BIS’s most recent CBDC survey, conducted in 2021, covered a record 81 central banks, representing close to 76 percent of the world’s population and 94 percent of global economic output. The survey found that nine out of ten central banks are now exploring CBDCs, with half developing or running concrete experiments. The survey also showed that more than two-thirds of central banks are likely to issue a retail CBDC in the short or medium term (within the next six years).
Amid this rising global interest in CBDC, demand from IMF member countries for technical assistance on CBDC has increased sharply. By the end of February 2023, over 40 countries had approached the IMF to request assistance. Countries’ questions range from objectives and design choices to pilots and analysis of macro-financial implications. In the past two years, the IMF has started to engage with almost 30 countries. We believe CBDC capacity development is essential to avoid a digital divide.
CBDC is likely to have profound implications for monetary policy and financial stability. CBDC could strengthen the usability, resilience, and efficiency of payment systems and increase financial inclusion. However, if poorly designed, CBDC could also lead to financial stability risks, data privacy and legal challenges, financial integrity and cyber risks, and central bank operational risks. In addition, widespread use of CBDCs could change the configuration of the international monetary system. CBDC could reduce the number of intermediaries in cross-border payments, foster competition and enhance transparency. On the other hand, easy access to foreign CBDCs could lead to risks of currency substitution and capital flow volatility.
These are important considerations for the IMF, as we have a mandate to help ensure that digital money, including CBDCs, foster domestic and international economic and financial stability. This mandate is outlined in our Digital Money Strategy, which was endorsed by our board in July 2021. The IMF must monitor, and advise on, digital money developments for all our members recognizing the macro relevance of digital money and fintech developments of which CBDC is an increasingly significant element.
Against this backdrop, to document emerging lessons, analytical findings, and policy views, IMF staff recently published an IMF policy paper on the IMF Approach to CBDC Capacity Development. This policy paper outlines a multi-year strategy to help IMF member countries meet challenges regarding CBDC and introduce the plan for a CBDC Handbook.
The Handbook will be a compendium of knowledge and experience on CBDC. It will be the basis for capacity development and hopefully, help countries make as well-informed decisions as possible when taking the major step to design and issue their own CBDC.
I want to finish my opening remarks by stressing that IMF capacity development activities involve multiple stakeholders, and we want to be collaborative and inclusive. Our donors, external experts, the recipient countries, and the IMF, are equal partners. We form our strategies after wide consultations, and we want to receive your feedback on a continual basis. In the fast-moving field of digitalization, we want to ensure we work on new topics such as CBDC in the right direction.
I do believe today’s panel discussion will help strengthen the IMF’s capacity development on CBDC.