CBDC May Be Better Than Cryptocurrencies, Says IMF

  • According to the director of the international credit body, stablecoins, and all other forms of private digital money, might not be up to par with central bank currencies.
  • Currently there are approximately 100 countries around the world testing CBDCs, the development for all of which are at different stages, the IMF notes.

The International Monetary Fund (IMF) considers central bank digital currencies (CBDC), which are currently in different exploratory and testing phases in a hundred countries, to be capable of offering greater security and stability than other digital currencies such as Bitcoin.

The belief was indicated by the Managing Director of the IMF Kristalina Georgieva in a report published on Thursday 10th, in which she pointed out that:

“If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money.”

Giorgieva argued that crypto assets are unbacked and therefore “inherently volatile.” But even when compared to stablecoins, CBDCs could be far superior.

Still a Long Way to Go

“The better managed and regulated stablecoins may not be quite a match against a stable and well‑designed central bank digital currency,” she said in her report titled 'The Future of Money: Preparing for Central Bank Digital Currency,' which was presented to the Atlantic Council in Washington.

The managing director of the IMF does, however, acknowledge that CBDCs still have a long way to go, as they are still in the “experimental phase” and it is not known “quite how far or how fast they will go.”

She underlined that what is certain “is that central banks are building capacity to harness new technologies—to be ready for what may lie ahead.” Many CBDCs are already operational and circulating in various countries.

Georgieva’s report made reference to the advances of the Bahamian CBDCs with the Sand Dollar. Likewise, the Swedish Riksbank launched the eKrona last year, becoming the second central bank currency digital in the world.

She also highlighted China’s efforts in this regard with the digital yuan (e-CNY), which has managed to incorporate "more than a hundred million individual users and billions of yuan in transactions."
The official cited a report from the U.S. Federal Reserve during which she noted that "a CBDC could fundamentally change the structure of the U.S. financial system."

On the Flipside

  • The IMF has been repeatedly changing its stance on the importance of cryptocurrencies. The organization has recognized that they are a reality and here to stay, but suggests in its report that central banks only have to compete and be better.

Why You Should Care

  • One aspect of CBDCs that could prove to be a weakness, also happens to be one of the strengths of Bitcoin and all other cryptocurrencies, this being that it is money that operates in a decentralized network where the necessity for intermediaries is eliminated as a result of transactions being peer-to-peer.
  • Another potential risk is that cryptocurrencies are recognized around the world and operate in an open system, without the risk of blockage. In the case of CBDCs, there is no “one size fits all” as every economy is different, Georgieva admitted.

The managing director of the Fund further emphasized that “financial stability and privacy considerations are paramount to the design of CBDC.” Therefore, central banks must commit “to minimize the impact of CBDCs on financial intermediation and credit provision.”

Georgieva highlighted that “this is very important [in order] for the wheels of the economy to work smoothly.”

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    This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

    Author

    Santiago is a Venezuelan blockchain reporter specializing in economic and financial issues, with special emphasis on stablecoin trading as well as political and regulatory issues related to Latin America. Every day he reviews and analyzes movements in the crypto market to offer readers first-hand information that can help them make sound decisions in the exciting world of crypto.