IMF exec floats idea of exploring ‘synthetic’ CBDCs

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Synthetic central bank digital currencies (CBDCs) could offer the best combination for central banks exploring digital currencies, according to a senior representative of the International Monetary Fund.

Tommaso Mancini-Griffoli, head of the monetary capital markets division at the IMF, said public-private partnerships in developing digital currencies could be the right option for central banks exploring the tech.

Mancini-Griffoli suggested that the concept of a digital currency backed by a central bank and backed solely by the bank’s reserve was no longer the only option, and may even be outdated compared to hybrid models.

He said that working together, private sector partners can focus on design, innovation and client management, while the public sector works on regulation and trust.

Building on the original concept of CBDCs, Mancini-Griffoli said synthetic CBDCs allow the private sector too to issue liabilities, which can be used to purchase assets for payment.

“There are a bunch of different stablecoins that are available. It’s hard for consumers to know which ones are fully backed and which ones really offer a claim on the underlying reserves and how liquid and safe are those reserves and are they liquid and safe enough in all states of the world.”

“The question is where do you draw the line of what the public sector does and what the private sector does. The fundamental question is about issuing. Does the public sector issue and the private distribute or do we also allow the private sector to issue?”

Mancini-Griffoli said the intention was not to ‘rock the boat’ with mainstream banking.

“The banking sector is essentially funded by wholesale, and there wouldn’t be an enormous move of deposits away from banks towards a new system of payments.”

However, with the benefits of blockchain payments, he said it is likely more banks would be turning to innovative payment technologies like CBDCs in future.

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.