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IMF’s CBDC blueprint calls for ‘paced and iterative’ approach among banking regulators

The International Monetary Fund (IMF) has published a guiding document to assist banking regulators in launching central bank digital currencies (CBDCs) in line with the needs of their local economies.

The document calls for a slow-and-steady approach for central banks, warning that a botched launch could have adverse effects on the financial sector. In its report, the IMF underscored the need for CBDC exploration and launch to be “jurisdiction specific,” with participating central banks paying attention to the “degree of digitization of the economy.”

Apart from proceeding with a dynamic decision-making process, the IMF makes a strong case for a “phased and iterative approach.” It noted that a layered approach to CBDCs offers central banks the perks of greater levels of control, allowing them to make necessary changes based on received feedback.

“A phased and iterative approach could allow central banks to adjust the pace, scale, and scope of their CBDC projects as the domestic and international environment changes,” read the report.

The IMF noted that rolling out a CBDC rests on several external factors depending on the nation’s economy. In advanced countries, central banks are expected to pay keen attention to the payment competitiveness, accessibility, and transmission of monetary policy.

For emerging economies, the need to prevent their local economies’ increasing “cryptoization” or “dollarization” is sufficient motivation to explore the concept of CBDCs. Generally, the IMF urges the global central bank to be aware of the risks faced by commercial banks following a successful CBDC rollout.

While it appears that several central banks are inching toward CBDCs to address payment challenges, the IMF’s report underscored the importance of a long-term strategy. The IMF added in its report that the CBDC launch would most likely be seamless if central banks pay attention to qualitative analysis like key performance indicators (KPIs).

To ensure uniform development of CBDCs, the IMF has offered technical assistance to over 40 nations while pledging the development of a CBDC handbook to support global development efforts.

Over 100 nations are exploring CBDCs

At present, 98% of the world’s economy is exploring the possibilities of CBDCs, which experts say could have far-reaching effects on global finance. A Reuters report indicated that apart from Argentina, all G20 nations are conducting CBDC research with cross-border payments and financial inclusion driving the studies.

With China’s retail CBDC nearing a full-scale launch, Russia and India are closing the gap with a frenetic approach to development. Russia anticipates a 2024 launch for its CBDCs after unveiling a legal framework to regulate the digital ruble, while India targets a minimum of one million digital rupee transactions per day before the end of the year.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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