The central banks of the Digital Currency (CBDCs) played an important role as the world's leading financial groups met at this year's Spring Meeting of the World Bank Group and the International Monetary Fund (IMF) in the United States. In the face of emerging disruptive technologies such as Bitcoin, discussions have also focused on how money and payments worldwide are taking shape. The debates had no definite conclusion, but Christine Lagarde of the IMF admitted that cryptocurrencies have shaken the established global financial order.
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50% chance that Sweden will exhibit CBDC in the next 10 years
It is not surprising that CBDCs continue to be an issue at the Spring Meetings, which took place in Washington DC from 8 to 12 April this year. Lagarde, the managing director of the IMF, has in the past urged central banks to consider adopting digital currency to make transactions safer. She argues that government-sponsored cryptocurrencies could achieve the policy goals of financial inclusion, consumer protection, privacy and fraud prevention.
At the last round of meetings, central bank officials experimenting with CBDCs, including those from Canada, Sweden and Uruguay, provided up-to-date information on their work and discussed the potential characteristics and technological design of such currencies. In one of the panel discussions titled "CBDC: Should Central Banks Spend Digital Currencies?" Swedish Central Bank Deputy Governor Cecilia Skingsley said Risbank had a 50% chance to spend its own digital currency, e-krona , within the next decade.
"The discussion around CBDCs is very important because money matters and how we organize companies for money," said Skingsley. In Sweden, the value of banknotes and coins in circulation is only 1% of GDP. Compared with about 10% in the Eurozone and 20% in Japan. Skingsley said that only one in ten in Sweden uses cash for payments, a development that has made the E-crown a possible alternative. She explained:
People now believe that digital payments and keeping money in digital form are much better suited to their needs. This means that the Swedes will no longer have access to central bank money in a few years due to current trends, as banknotes are the money of the central bank.
Non-cash transactions are rising
Cashless transactions or various types have increased worldwide in recent years. Bitcoin, for example, was created to challenge the conventional financial system and give back to people the possession of money, beyond the reach of the state. But this vision has not made it to the traditional financial gurus. Not surprisingly, many national governments have voiced concerns about cryptocurrencies and called for stricter regulation.
To counter these threats, some central banks have considered whether and how to adjust CBDCs. Around 25% of central banks around the world are actively exploring the possibility of launching government-secured cryptocurrencies even though only a handful of attempts have been reported. The Eastern Caribbean Central Bank and the Central Bank of the Bahamas have both announced plans to conduct block-based CBDC pilots.
The case for digital currencies of the central bank
In Canada, the digital currency of a central bank is steadily and carefully taking shape. Bank of Canada Deputy Governor Timothy Lane highlighted the costs and benefits, risks and opportunities of issuing CBDCs at the IMF's Spring Meetings. One of his key contributions focused on the relationship between interest rates and a central bank's digital currency. Lane worked out:
Some people have suggested that CBDC should be interest bearing, including the possibility of negative interest rates. Partly this would be the reason for the introduction. This is the idea that you could break the zero floor if you want to spend more money on political incentives.
However, Lane added, "For the whole to be viable, the public must actually be convinced that this is something they want to keep. I suspect that is part of the main motivation [for issuing CBDCs], "
Both the World Bank and the IMF are committed to virtual money. The Bretton Wood Institutions announced an in-house experimental blockchain sign that was appropriately named Learning Coin. The idea is that employees have a hands-on approach to learning blockchain technology. Using a specially designed mobile app, employees can read curated content and watch videos related to Blockchain, in return for the worthless Learning Coin, which can only be redeemed in-house.
Special Drawing Rights
However, the concept of a unique exchange unit is not exactly new to the IMF. In 1969, the organization set up the so-called Special Drawing Rights (SDR) – an asset that almost acts as a currency. The SDR is used for transactions between central banks and the IMF. more or less what some countries want to achieve with large, block-chain-based interbank payment experiments, for example Jasper I & II in Canada, Khokha in South Africa and Stella I in Europe. Similarly, at least six international banks have announced plans to issue stable coins based on Fiat Currency on World Wire from IBM to enable faster and cheaper cross-border credit transfers and payments.
In both systems, there are some similarities. The value of the SDR is based on a basket of five currencies – the US dollar, the euro, the Chinese renminbi, the Japanese yen and the pound sterling. Stablecoins draw their value from the fiat currency. Canadian company Timothy Lane said it will take a bit longer for central bank digital currencies to become useful for cross-border payments, as this requires greater cooperation with regulators. Others are simply encouraged that the CBDC discussion at the IMF conferences has remained open and up-to-date.
"It's clear that both the government and the private sector are keen to learn more about CBDC and what the future of digital payments might look like," said Ashley Lannquist of the World Economic Forum news.Bitcoin.com. "It is commendable that the IMF and the World Bank Group have decided to host and present dialogues on the central bank's digital currency, which is an important example for other international organizations."
How do you assess the position of the IMF in relation to the digital currencies of central banks? Let us know in the comments below.
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The first currencies of the Central Bank for Digital Currencies at the Spring Meetings of the IMF were first published in the Bitcoin News.