Central bank digital currencies (CBDCs) will give central banks more control over monetary policy, even if they don’t solve every issue, according to the International Monetary Fund (IMF).
In a recently published report, the organization said that while the technology may deliver benefits for policymakers, there were many crises CBDCs could not fix.
“Overall, the paper finds that CBDCs do not qualitatively change the economic forces that lead to the international use of currencies, as they are only digital forms of existing fiat currencies but quantitatively, they could reinforce the incentives behind currency substitution and currency internationalization.”
The report said that central bank-backed digital currencies cannot change the fundamentals of a fiat currency, and will not provide stability to unstable currencies.
“If the local currency suffers from instability and provides a poor unit of account, issuing CBDC is unlikely to change that. More broadly, the case for CBDC issuance is likely to depend on country circumstances.”
Nevertheless, the report suggests CBDCs are likely to play an increasing role in the future, with many online platforms expected to launch digital currencies in the coming years.
— IMF (@IMFNews) October 18, 2020
In the paper, the IMF envisaged a series of stablecoins launched by big tech firms, which could peg to fiat currencies at launch, only to later switch to an unbacked status once critical mass had been achieved. Decoupling these from fiat later could create unbacked global stablecoins, or GSCs, which could rival fiat currencies.
“At some stage, once adoption reaches some critical mass, the peg to existing reserve currencies may no longer be needed to generate trust in the value of the GSC, and the GSC could become a fiat currency.”
“In addition, even in countries with credible policy frameworks, the adoption of GSCs could be significant as they could facilitate transactions associated with certain e-commerce or social networking platforms.”
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