As countries roll out digital currencies, the International Monetary Fund sees itself playing a “critical role” so that more nations can take advantage of the new technology and mitigate risks.
In a paper released Thursday, IMF said low-income and emerging market countries in particular “will need timely advice and capacity development assistance.”
IMF’s board discussed topics covered in the paper earlier this year, and a statement on that meeting details some signs of division among members. For now, the IMF role may be mostly advisory.
“We believe that innovation and inclusion go hand in hand,” IMF Managing Director Kristalina Georgieva said at an event Thursday, arguing that digital currencies can reduce costs, increase efficiencies, and help bring more people into the financial system.
She differentiated between cryptocurrencies such as Bitcoin, which she described as a volatile asset, and central bank-issued digital currencies, or CBDCs, which are closer to digital representations of physical cash.
Who has them? Georgieva said 110 countries are either discussing or piloting CBDCs. The Bahamas took an early leap and launched the Sand Dollar, its CBDC, in October 2020 at the national level.
“We want to address financial inclusion and financial access,” said John Rolle, governor of the Bahamas’ central bank, adding that the currency is designed to be used and not hoarded. China is trialing digital yuan.
Why now? Discussions around digital fiat currency have been ongoing for years but picked up pace amid cryptocurrencies’ rising popularity and plans from companies such as Facebook to launch their own coins. Additionally, CBDCs may help fight money laundering. The Bank for International Settlements has backed CBDCs.
Why not? There have been several arguments against CBDCs, especially on privacy grounds. Such currencies could allow governments to effectively track each monetary transaction. There is also a worry that they could accelerate financial instability, such as bank runs.
This coverage exploring innovative finance solutions and how they enable a more sustainable future, is presented by the European Investment Bank.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
