## Central Bank Digital Currency (CBDC): A Global Perspective

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**Canonical URL:** [Central Bank Digital Currency (CBDC): A Global Perspective](https://www.imf.org/-/media/files/oap/oap-home/2023/dong-he-presentation-cbdc-oap-apr-25-2023.pdf)

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### Context and framing
- Presentation by Dong He, Deputy Director, Monetary and Capital Markets Department, International Monetary Fund.
- Seminar at the Regional Office for Asia and the Pacific, April 25, 2023.
- Opening reference: Amara’s Law — “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” Roy Amara, American Futurist.

### What’s special about CBDC?
- Legal and economic taxonomy:
  - Currency: official means of payment recognized by monetary law; always denominated in the official monetary unit; legal tender entitles a debtor to discharge monetary obligations.
  - Money: broader than currency; includes assets readily convertible or redeemable into currency (e.g., book money).
  - Payment instruments: not necessarily currency or money but effect payments ultimately settled in currency or money.
  - Payment system: instruments, procedures, and rules for transfer of funds; includes participants and the operator.
  - Economic perspective: Money can be anything that serves as a medium of exchange, unit of account, and store of value.
- Positioning digital money within taxonomy (as presented):
  - E-money: payment instrument.
  - Unbacked crypto-assets: investment asset.
  - Stablecoins: payment instrument and payment system.
  - CBDC: payment instrument and payment system.
  - Note: annotations include “In some jurisdictions classified as money for VAT purpose (but not financial law)” and “Except in El Salvador and Central African Republic”.
- Dual nature of CBDC:
  - CBDC as an instrument:
    - Spectrum of “cash-like” and “deposit-like” features.
    - 24 x 7 hours direct access; offline capacity.
    - Safety and integrity.
    - Integration with markets for tokenized assets.
    - Programmability as an efficient fiscal tool and for “Internet of Things”.
    - Characterized as not just another form of e-money or payment instrument but a monetary foundation of the digital economy.
  - CBDC as a platform:
    - Ensures safety, efficiency, interoperability when paying, exchanging, and programming across private networks.
    - Supports retail and/or wholesale CBDC.
    - Connects money networks (e.g., tokenized deposits) and asset networks (e.g., tokenized bonds).
    - Provides shared functions: rules, governance, recourse, oversight; unique shared ledger; encryption; basic functionality (eg escrow, release, transfer…); single programming language; open access.
- Functional capabilities highlighted:
  - Programmability/smart contracts.
  - Encryption.
  - Potential for on-platform settlement for cross-border payments (x-CBDCs).

### Emerging lessons from global developments
- Front runners and active projects:
  - Countries/issuers cited: The Bahamas, ECCB, Jamaica, Nigeria, Brazil, China, India, Bank of England, ECB, Riksbank.
  - Quotation noted: “The Bank of England and HM Treasury judge it likely that a digital pound will be needed in the future.”
  - BIS Innovation Hub projects referenced (e.g., Jura, mBridge...).
- Value propositions of new digital cross-border payment networks:
  - Potential to increase efficiency by reducing cost of verification and cost of networking (Catalini and Gans, 2020).
  - Shift trust from identity to object (Kahn and Roberds, 2009), underpinned by technology.
  - Shift trust from bilateral relationships to multilateral networks governed by common rules (Adrian, Garratt, He, Mancini-Griffoli, 2023).
- Emerging consensus on managing policy tradeoffs and synergies:
  - Topics: Tiered wallets, Financial inclusion, Privacy, Financial stability, Financial integrity.
- Privacy versus integrity tradeoff landscape (illustrative):
  - Cash, Bank deposits, CBDC with “traceable anonymity”.
- Smart money vs smart payments:
  - CBDC’s dual function: the ultimate, most widely accepted, and safest “settlement asset” and an efficient and convenient “payment instrument”.
  - Programmability may enhance efficiency, convenience, and reduce cost of fulfilling contractual obligations, but could affect the universality of money.
- Open questions identified:
  - “What is the optimal degree of adoption? How do we define success?”
  - “What are the sustainable business models to ensure low cost for both CBDC users and merchants?”
  - “How can data associated with CBDC use be efficiently and safely shared to facilitate financial inclusion?”
  - “How to achieve interoperability among CBDCs across the world?”
  - “How to incorporate financial and regulatory policies such as capital flow management measures (CFMs) in cross-border use of CBDCs?”

### IMF approach to CBDC capacity development
- Rising demand for IMF assistance on CBDC (as of February 2023):
  - Countries exploring CBDC: 100 +
  - Bilateral CD requests YTD: 48
  - Ongoing bilateral CD: 24
  - Regional workshops: 5 regions
  - Regional workshops attendance: 5 regions, 500+ cumulative attendance
  - Departments involved: MCM, ITD, LEG, RES, SPR and Area Departments
- Challenges faced by many IMF members:
  - Lack of clarity in motivations.
  - High expectations but limited capacity and resources.
  - Unanswered analytical questions.
  - Dispersed data, knowledge, experiences.
  - Identified need for a handbook.

### CBDC Handbook: role and structure
- Purpose and features:
  - Basis for CBDC capacity development engagement.
  - Frequently asked questions.
  - Emerging lessons, views, messages from analytical work – mostly descriptive.
  - Consistency: ensure CD is consistent across jurisdictions.
  - “Living” document: new chapters at regular intervals and updates.
  - Multiyear project: about 20 chapters over 4-5 years, starting Fall 2023.
  - Collaborative effort: Multiple IMF departments, input from member countries (including G7) & international organizations (such as BIS), vetting by IMF Board.
- Chapters grouped in five thematic areas with sample chapter topics:
  - Objectives and framework:
    - Digital Money: Positioning CBDC
    - Identifying pain points and objectives
    - Elements of thinking through CBDC
  - Foundational requirements and readiness:
    - Legal Considerations
    - Operational and cyber resilience
    - Required Capacity within Central Banks
    - Regulation and supervision
  - Design process, considerations, and choices:
    - Design choices
    - Business models and adoption
    - Financial integrity considerations
    - Data Use and Privacy Protection
    - Capital Flow Management Measures
  - Project approaches and technology:
    - Project management (5 Ps)
    - Technology landscape and innovation
  - Potential macro-financial impacts:
    - Impact on monetary policy transmission
    - Impact on bank disintermediation and financial stability
    - Cross-border payments
    - Financial-sector market structure and contestability
    - Promoting Financial Inclusion

### Takeaways and policy implications
- CBDC potential and design:
  - “CBDC has the potential to allow central banks to better meet their policy objectives in the digital age.”
  - Design choices are crucial to realizing the potential of CBDC.
  - “Possibilities are many and bound only by our imaginations.”
- Public-private partnership and business models:
  - Effective public-private partnerships need to be developed to design and operate the CBDC infrastructure and ensure sustainable business models and optimal adoption.
- International cooperation:
  - International cooperation is key to interoperable CBDCs.
  - The configuration of networks will be in a state of flux.
  - “The international community should work together to prevent digital divide and fragmentation.”

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2023/dong-he-presentation-cbdc-oap-apr-25-2023.pdf_