## IMF APPROACH TO CENTRAL BANK DIGITAL CURRENCY CAPACITY DEVELOPMENT (ppea2023016)

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### Executive summary — motivations, scope, and priorities
- Global interest and mandate
  - Retail CBDC issuance is being explored in over 100 countries.
  - Over 40 countries have approached the IMF to request assistance through CBDC capacity development (CD).
  - The IMF’s Digital Money Strategy was endorsed by its Executive Board in July 2021 and gives the institution a mandate to help ensure that digital money fosters domestic and international economic and financial stability.
  - CBDC will likely have important implications for monetary policy, financial stability, and the international monetary system (IMS).
- Empirical context (surveys cited)
  - BIS 2021 CBDC survey covered 81 central banks, representing close to 76 percent of the world’s population and 94 percent of global economic output.
  - The BIS survey found that nine out of 10 central banks are now exploring CBDCs, with half developing or running concrete experiments.
  - The BIS survey also found that more than two-thirds of central banks are likely to issue a retail CBDC in the short or medium term (within the next six years).
  - The Atlantic Council (2023) tracks CBDC developments in 119 countries and indicates similar results.

### Current IMF approach to CBDC capacity development (CD)
- Modalities and activities
  - Bilateral CD providing hands-on advice; engagements in CBDC exploration have taken place in almost 30 countries.
  - Regional workshops to build awareness and share experiences across regions (African region, Caribbean region, Asia Pacific).
  - Analytical work to strengthen policy lines and provide empirical support.
- Key characteristics
  - Emphasis on helping authorities answer how to think about CBDCs rather than whether to pursue CBDCs under certain conditions.
  - Collaboration across multiple IMF departments in missions and workshops.
- Implication for CD evolution
  - As policymakers move from conceptual exploration to concrete CBDC consideration, IMF CD will need to evolve to provide increased value-added advice that is more tailored to country circumstances and more solidly anchored in empirical and analytical work, and strengthen synergies with surveillance.
  - This shift implies more normative, policy-experience-anchored advice, greater consultation with member countries and the IMF Executive Board, and mechanisms to consolidate and share insights.

### Prioritization, resourcing, and risk management
- Current resourcing
  - The IMF is currently meeting requests with budget augmentation and donor funding to ensure evenhandedness.
- Prioritization and risk-management approach
  - Give priority to:
    - Countries that are systemically important.
    - Countries that are fast-tracking CBDC developments but have relatively high-capacity constraints or weak regulatory standards.
    - Answering the most pressing and frequently asked questions.

### Collaboration with other institutions and cross-border payments
- Partnerships and roles
  - IMF will collaborate with BIS, World Bank, CPMI, FSB and other international organizations to deliver CD and draw on their expertise while avoiding duplication.
  - Example: IMF and World Bank jointly developing a technical assistance program in close collaboration with CPMI and FSB to enhance cross-border payments under the G20 roadmap.
  - When collaborating, the IMF remains responsible and accountable to the IMF Executive Board.

### CBDC Handbook — purpose, process, and timeline
- Purpose and rationale
  - Document emerging lessons and results from analytical work; provide a reference for policymakers and central bank experts, particularly in EMDEs; help countries ascertain whether CBDC makes sense and make well-informed decisions.
- Project scale and timeline
  - About 20 chapters envisaged over the next four to five years, with chapters produced or updated each year.
  - The Handbook will be a “living” document reflecting evolving experiences, findings, and policy views.
  - An initial wave of chapters is slated for publication around the 2023 Annual Meetings.
- Five priority question bundles the Handbook will address
  1. Policy objectives and operational framework of CBDC.
  2. Foundational requirements and readiness to issue CBDC (legal considerations, cyber resilience, central bank governance, regulation and supervision).
  3. CBDC design processes, considerations, and choices.
  4. Project approaches and technology.
  5. Potential macrofinancial impacts of CBDC.
- Development process (three-step approach)
  1. Develop Fintech Notes on CBDC topics to seek comments inside and outside the IMF.
  2. Brief the IMF Executive Board on key policy messages extracted from the Fintech Notes.
  3. Publish subsequent waves of Handbook chapters around the time of Annual Meetings.

### Operational lessons and country engagement examples
- Central Bank of Jordan (CBJ) CD engagement
  - Three-phase mission starting in late 2021: knowledge-sharing seminars; peer-learning workshops; and fieldwork.
  - Outcomes: two technical assistance reports addressing payment landscape and pain points; wholesale and retail CBDC opportunities and challenges; technology, cybersecurity, legal, and regulatory preparatory requirements; and a recommended course of action in the short to medium term.
  - A high-level summary of the retail CBDC exploration report has been published.
- Banco Central de Reserva del Perú (Leapfrogging through CBDC) — boxed example
  - Context: low uptake of digital payments, nearly half the population unbanked; supply- and demand-side constraints identified.
  - IMF assistance: feasibility assessment, stakeholder research (29 top-level leaders of 21 financial institutions and regulators interviewed; 27 citizens from rural and urban areas interviewed), roadmap and iterative, phased approach, white paper drafting advice, innovation challenge operating manual.
- Bangko Sentral ng Pilipinas (BSP) — Box 3
  - BSP preparing to pilot a wholesale Central Bank Digital Currency (wCBDC) under Project CBDCPh to address cross-border payments, settlement of equity transactions in central bank money, and automation of intraday liquidity management.
  - IMF engagements: virtual training sessions and workshops; field mission to assess value proposition and use cases.

### Thematic focus areas (Handbook chapters and highlights)
- Objectives and Framework (Chapters 1–3)
  - Chapter 1 — “position” CBDC: differentiate CBDC from fast payments and e-money; explore whether CBDC is superior to alternatives; role in supporting digitalization.
  - Chapter 2 — identify pain points and objectives: evaluate how CBDC can address payment system gaps; objectives include promoting digitalization and financial inclusion, improving efficiency, ensuring resilience, reducing illicit use, fostering competition, securing monetary sovereignty.
  - Chapter 3 — framework to guide countries: high-level decision-making process and organization of feasibility studies; interconnections among objectives, capacity, risks, design, technology, legal foundations, regulation, and supervision.
- Foundational Requirements and Readiness (Chapters 4–6)
  - Chapter 4 — legal foundation: assess adequacy of existing legal frameworks; need for legal certainty before issuance; assess financial integrity risks and mitigations.
  - Chapter 5 — central bank cyber readiness and resilience: best practices to build secure and resilient CBDC ecosystems; strengthen cyber resilience via internal organization and governance.
  - Chapter 6 — central bank capacity: set up teams, institutional design, in-house vs outsourcing decisions, required skillsets, governance and risk management features.
- Regulation and Supervision (Chapter 7)
  - Oversight consistent with CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) and applicable international standards for service providers.
  - Institutional designs to separate oversight/supervision from operational functions; legal frameworks relevant to intermediaries and payments law interactions; legal amendments needed for supervision, regulation, and financial integrity.
- Design Process, Considerations, and Choices (Chapters 8–12)
  - Chapter 8 — Design Choices: operating model, limits in holding, programmability, interest bearing, degree of centralization; map choices to objectives and risks and identify tradeoffs.
  - Chapter 9 — Business Models and Adoption: incentives for banks, nonbank PSPs, and vendors; role of access to transactions data; costs of development and maintenance.
  - Chapter 10 — Financial Integrity Considerations: ML/TF risks by design feature; recommend ML/TF risk assessment prior to launch; possible AML/CFT framework updates and oversight needs.
  - Chapter 11 — Data Use and Privacy Protection: data generated, access, storage risks, tradeoff between data use and privacy; role of privacy-enhancing technologies; country-specific choices.
  - Chapter 12 — Capital Flow Management Measures: how CBDC can facilitate or undermine CFMs; part A designing CBDC to support CFMs; part B adapting CFMs to foreign CBDCs; programming CFMs into CBDCs or exchange platforms.
- Project Approaches and Technology (Chapters 13–14)
  - Chapter 13 — Project Management: five-step process — (1) preparation; (2) PoA (assumptions validation); (3) prototypes; (4) pilots; (5) production. Legal allocation of responsibilities, outsourcing rights, evaluation methodology, pre-launch checklist including business continuity.
  - Chapter 14 — Technology Landscape and Innovation: review technology “stack”, vendor management, DLT vs non-DLT, offline access, programmability, resilience; explore labs, PoA, hackathons, call for tender.
- Potential Macrofinancial Implications (Chapters 15–19)
  - Chapter 15 — Financial Inclusion: CBDC’s role for inclusion in emerging market and low-income economies; identify design features that improve inclusion and complementary strategies.
  - Chapter 16 — Monetary Policy Transmission: implications across regimes; impact on interest rate, credit, exchange rate, and asset price channels; analysis for (1) inflation targeting; (2) exchange rate targeting; (3) monetary aggregate targeting.
  - Chapter 17 — Bank Disintermediation and Financial Stability: framework for appraising impact on bank runs, funding costs and structure, currency runs; design choices to safeguard financial system.
  - Chapter 18 — Cross-Border Payments: opportunities and risks for cross-border CBDC use; models to increase speed, transparency, accessibility and reduce costs; implications for capital flows; support IMF/World Bank TA per Building Block 19 of the G20 Roadmap.
  - Chapter 19 — Market Structure and Contestability: impact on payments market structure, role of banks and nonbanks, competition with cash, deposits, e-money, cryptocurrencies.

### Governance, development process, and publication plan
- Three-part development process
  1. Staff develop Fintech Notes for each chapter and seek comments from inside and outside the IMF.
  2. Staff brief the IMF Executive Board on key policy messages from Fintech Notes once sufficient new policy messages exist.
  3. New Handbook chapters published each year around the Annual Meetings; chapters build on Fintech Notes and are added to the online CBDC Handbook; outreach accompanies releases and chapters are updated as experience builds.
- Scope limitation
  - Chapters limited to topics within the IMF’s mandate to ensure digital money fosters domestic and international economic and financial stability and underpin the digital money strategy (IMF 2021).

### Funding and resourcing details
- Major partner and donor
  - The Government of Japan is a major partner and donor funding the Handbook through a Japan subaccount (JSA) CBDC Funding Program to support CD, outreach, and knowledge sharing with a focus on EMDEs.
- Funding windows and amounts
  - JSA funding under the COVID-19 Window: $1.3 million supports CD and analytical work from December 2021 to April 2023.
  - JSA funding under the new Digital Money Window: $10.4 million supports CD and analytical work from November 2022 to April 2025.
  - Coverage of AML/CFT and broader financial integrity issues is funded by the multi-donor Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Thematic Fund.

### Conclusions and implementation plan
- Key observations
  - Global interest in CBDC is unprecedented but there are few real-world examples.
  - Sharp increase in demand from member countries for CBDC CD.
  - Through bilateral CD and regional workshops, IMF staff are developing analytical and practical understanding of CBDC-relevant issues.
  - The IMF is well-positioned to assist policymakers and strengthen central banks’ capacity building in CBDC.
- Handbook objectives and outputs
  - About 20 chapters envisaged over the next four to five years, with four to five chapters produced per year.
  - Handbook will be a “living” document: published chapters will be updated and new chapters added as experiences and policy views evolve.
  - Ultimate aim: help countries make well-informed decisions when designing and issuing their own CBDC.

*Source: IMF — "IMF APPROACH TO CENTRAL BANK DIGITAL CURRENCY CAPACITY DEVELOPMENT", Executive Summary and selected chapters (ppea2023016).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Global interest, mandate, and motivations
- The level of global interest in Central Bank Digital Currencies (CBDCs) is unprecedented: retail CBDC issuance is being explored in over 100 countries.
- Over 40 countries have approached the IMF to request assistance through CBDC capacity development (CD).
- The IMF’s Digital Money Strategy, endorsed by its Executive Board in July 2021, gives the institution a mandate to help ensure that digital money fosters domestic and international economic and financial stability.
- CBDC will likely have important implications for monetary policy, financial stability, and the international monetary system (IMS).
- Surveys and empirical context cited:
  - BIS 2021 CBDC survey covered 81 central banks, representing close to 76 percent of the world’s population and 94 percent of global economic output.
  - The BIS survey found that nine out of 10 central banks are now exploring CBDCs, with half developing or running concrete experiments.
  - The BIS survey also found that more than two-thirds of central banks are likely to issue a retail CBDC in the short or medium term (within the next six years).
  - The Atlantic Council (2023) tracks CBDC developments in 119 countries and indicates similar results.

### Current IMF approach to CBDC capacity development (CD)
- CD efforts to date have focused on facilitating peer learning and developing analytical underpinnings for staff advice to member countries.
- Typical CD modalities:
  - Bilateral CD providing hands-on advice; engagements in CBDC exploration have taken place in almost 30 countries.
  - Regional workshops to build awareness and share experiences across regions (African region, Caribbean region, Asia Pacific).
  - Analytical work to strengthen policy lines and provide empirical support.
- Key characteristics of IMF CBDC CD so far:
  - Emphasis on helping authorities answer how to think about CBDCs rather than whether to pursue CBDCs under certain conditions.
  - Collaboration across multiple IMF departments in missions and workshops.
- Implications for CD evolution:
  - As policymakers move from conceptual exploration to concrete CBDC consideration, IMF CD will need to evolve to provide increased value-added advice that is more tailored to country circumstances and more solidly anchored in empirical and analytical work, and strengthen synergies with surveillance.
  - This shift implies more normative, policy-experience-anchored advice, greater consultation with member countries and the IMF Executive Board, and mechanisms to consolidate and share insights.

### Prioritization, resourcing, and risk management
- The IMF is currently meeting requests with budget augmentation and donor funding to ensure evenhandedness.
- With increasing demand, the IMF will need to prioritize CBDC CD by taking a risk-management approach, giving priority to:
  - Countries that are systemically important.
  - Countries that are fast-tracking CBDC developments but have relatively high-capacity constraints or weak regulatory standards.
  - Answering the most pressing and frequently asked questions.

### Collaboration with other institutions and cross-border payments work
- The IMF will collaborate with other international organizations (e.g., BIS, World Bank, CPMI, FSB) to deliver CD and draw on their expertise while avoiding duplication.
- Example collaboration: CD to enhance cross-border payments under the G20 roadmap, with the IMF and World Bank jointly developing a technical assistance program in close collaboration with CPMI and FSB.
  - Activities include outreach to countries, materials development, establishing a roster of cross-border payments experts, and undertaking technical assistance missions.
- When collaborating, the IMF is ultimately responsible and accountable to the IMF Executive Board.

### The CBDC Handbook: purpose, scope, and process
- Rationale:
  - To document emerging lessons and results from analytical work in a fast-moving field.
  - To provide a reference for policymakers and central bank experts, particularly in emerging market and developing economies (EMDEs).
  - To help countries ascertain whether CBDC makes sense for them and make well-informed decisions.
- Project scale and timeline:
  - About 20 chapters envisaged over the next four to five years, with chapters produced or updated each year.
  - The Handbook will be a “living” document reflecting evolving experiences, findings, and policy views.
  - An initial wave of chapters is slated for publication around the 2023 Annual Meetings.
- Five priority question bundles the Handbook will address:
  1. Policy objectives and operational framework of CBDC.
  2. Foundational requirements and readiness to issue CBDC (legal considerations, cyber resilience, central bank governance, regulation and supervision).
  3. CBDC design processes, considerations, and choices.
  4. Project approaches and technology.
  5. Potential macrofinancial impacts of CBDC.
- Chapter characteristics:
  - Provide a framework for structuring CBDC exploration.
  - Recommendations drawn from international best practices and conditional on country circumstances.
  - Initial chapters prioritized because they: (1) provide a methodological framework for conducting CBDC exploration; (2) address the most common requests IMF staff encounter in CD engagement; and (3) are based on relatively well-established knowledge and experiences.
- Development process (three-step approach):
  1. Develop Fintech Notes on CBDC topics to seek comments inside and outside the IMF.
  2. Brief the IMF Executive Board on key policy messages extracted from the Fintech Notes.
  3. Publish subsequent waves of Handbook chapters around the time of Annual Meetings.
- The Handbook will be produced following close collaboration with member countries and other international organizations to extract common practices.

### Operational lessons and country engagement example
- Boxed example: CBDC CD to the Central Bank of Jordan (CBJ)
  - Three-phase mission starting in late 2021: knowledge-sharing seminars; peer-learning workshops; and fieldwork.
  - Outcomes included two technical assistance reports addressing payment landscape and pain points; wholesale and retail CBDC opportunities and challenges; technology, cybersecurity, legal, and regulatory preparatory requirements; and a recommended course of action in the short to medium term.
  - A high-level summary of the retail CBDC exploration report has been published.

### Thematic focus areas for Handbook and CD
- The Handbook and CD will cover thematic areas including:
  - Objectives and Framework.
  - Foundational Requirements and Readiness.
  - Design Process, Considerations, and Choices.
  - Project Approaches and Technology.
  - Potential Macrofinancial Implications.
- The IMF will strengthen analytical techniques over time (for example, model simulation and country-specific quantification of macrofinancial impacts), as actual empirical data are limited.

*Source: IMF — "IMF APPROACH TO CENTRAL BANK DIGITAL CURRENCY CAPACITY DEVELOPMENT", Executive Summary (March 29, 2023).*

### 12.      Questions related to CBDC vary depending on country circumstances and familiarity with

### 12.      Questions related to CBDC vary depending on country circumstances and familiarity with CBDC.

### Exploration (first group)
- Authorities’ questions can be categorized into four groups; the first three groups are building blocks, and the fourth group includes important policy issues to consider before implementation.
- Examples of exploration questions:
  - What are the policy objectives of CBDC and alternative payment instruments?
  - What are the use cases?
  - What are the pros, cons, and risks of CBDC?
  - What lessons are other countries learning?
  - What are the frameworks, methodologies, and toolkits to guide countries to make decisions?
  - What are the pros and cons of cross-border use of CBDCs?
  - What are the necessary infrastructures and institutions required to issue CBDCs?
  - What are the implementation costs of CBDCs?
  - What are potential adoption levels?

### Design options (second group)
- Examples of design questions:
  - How do design features (for example, tiered wallets and offline functionality) relate to the objectives pursued?
  - What are the respective roles of the public and private sectors in designing and implementing a CBDC?
  - What are the approaches to data management?
  - What incentives are necessary to encourage intermediaries to participate in CBDC arrangements and to ensure cost recovery?
  - How to encourage adoption by merchants and consumers?
  - Which technologies are relevant and what are their pros and cons?
  - How would a central bank ensure cybersecurity?
  - How can an environmentally friendly CBDC be designed?
  - Does the existing legal framework provide the necessary foundation for a robust CBDC issuance?
  - Does the existing legal framework related to the central bank’s internal governance and risk management allow for an adequate governance and risk management of the CBDC issuance?
  - Which regulations and laws need to be in place to support CBDC and contain risks?

### Project management and organization (third group)
- Examples of project-management questions:
  - How to set up PoA and pilots?
  - How can pilots be designed to test specific policy hypotheses?
  - What granular data on payment market need to be collected to understand potential benefits risks and assess CBDC performance and adoption?
  - What is the operational capacity of central banks and their partners?
  - How to communicate with all stakeholders?
  - What are the governance and risk management arrangements as well as implementation considerations?

### Macrofinancial implications (fourth group)
- Examples of macrofinancial questions:
  - What are the implications for monetary policy transmission and operation, financial stability, the role and stability of banks, market structure and contestability, capital flows and capital flow management considerations, and external stability?
  - What are the implications for cross-border payments and how to achieve interoperability with other CBDCs?
  - How could CBDC be designed—and how could it leverage multilateral payment platforms—to strengthen the stability and efficiency of the IMS?
  - What are the roles of CBDC in promoting financial inclusion?
  - How do data management practices affect market structure and private sector involvement?

### Overview of the CBDC Handbook
- Purpose and audience:
  - The CBDC Handbook is intended to be a reference to help countries get up to speed, serve as a basis for CD delivery, and provide a focal point for analytical work.
  - Multiple IMF departments will collaborate; input and experience from country authorities will be widely sought.
  - Intended audience: medium- to high-level policymakers in central banks and ministries of finance, and to some extent in other government agencies; IMF staff and experts who join CD missions.
  - The Handbook does not constitute an endorsement of any CBDC issuance by the IMF; the choice of issuing a CBDC remains with the authorities themselves.
  - The reference will synthesize knowledge from a variety of sources, including IMF staff research published as Fintech Notes, Selected Issues Papers, and publications by other international organizations and academia.
- Approach and scope:
  - The Handbook will mostly be descriptive rather than prescriptive, offering information, experience, empirical findings, and frameworks to evaluate CBDC.
  - Most statements and analysis will be conditional on countries having specific policy objectives.
  - The Handbook will help central banks think through and evaluate the decision of whether to issue a CBDC and enable tailored application.
- Timing and rollout:
  - The CBDC Handbook chapters will be produced sequentially.
  - The Handbook will be a “living” document, with four to five new chapters (from a total of about 20) added each year over four to five years and existing chapters updated as new experience emerges and policy views evolve.
  - An initial wave of chapters will be published before the 2023 Annual Meetings.
  - Chapters chosen on the basis that: (1) they provide a methodological framework for conducting CBDC exploration; (2) they address the most common requests that IMF staff encounter in CD engagement; and (3) they are based on relatively well-established knowledge and experiences of CBDC.

### Rationale: Why put together a Handbook now?
- Drivers:
  - Strong and widespread interest in CBDC has resulted in a rapidly increasing number of requests for IMF guidance from central banks around the world.
  - The IMF has been providing assistance through bilateral CD and regional workshops and developing analytical work relevant for countries considering CBDC issuance.
  - The Handbook will encourage synergy between CD and analytical work, guide countries exploring CBDC, and strengthen central banks’ capacity building in CBDC.
- Alignment with IMF strategy:
  - To help implement the digital money strategy, a new Monetary and Capital Markets (MCM) CD Strategy 2022-25 was published in February 2022 (IMF 2022b).
  - One key element: IMF to maximize impact of CD work by providing demand-driven CD tailored to individual country needs and provide highly specialized CD across key financial sector topics.
  - CBDC represents a significant growth area in the CD strategy; CBDC CD projects are designed to adapt to domestic capacity and progress while considering macrofinancial impacts, legal considerations, and regulatory frameworks.
- Benefits:
  - Identifying and answering countries’ analytical questions through the Handbook could help authorities make well-informed decisions and help clarify the IMF’s stance on CBDC issues.
  - CBDC CD can help build capacity so countries can leverage macrofinancial benefits while containing risks, and indirectly benefit other countries by taking into account spillover effects and strengthening the IMS.
  - The Handbook will contribute to the overall MCM CD strategy and enhance synergy between bilateral CD and analytical work.
- Living document rationale:
  - CBDC is a new topic and experimentation is advancing quickly; waiting for all questions to be answered and best practices established before providing advice will not satisfy emerging country needs.
  - The Handbook is designed to capture existing body of knowledge and to update it regularly.

### Collaboration with member countries and other international organizations
- International cooperation:
  - The Handbook will build on work from the UK Presidency of the G7 that yielded the Public Policy Principles for Retail Central Bank Digital Currencies (G7 2021).
  - Prior work by the BIS and selected advanced-economy central banks, Central Bank Digital Currencies: Foundational Principles and Core Features (BIS 2020), is also relevant.
- Member-country collaboration:
  - Ongoing bilateral CD, regional workshops, and the Handbook will reinforce and enrich each other.
  - Fieldwork and member-country experience will guide development of the Handbook; lessons sufficiently general will be extracted and published.
  - Extensive consultation on Handbook chapters will facilitate broad buy-in and sharing of lessons.
  - The Handbook will build on existing global initiatives, encourage international cooperation, and help extract common practices.

### Funding of the Handbook
- Major partner and donor:
  - The Government of Japan is a major partner and donor to fund the Handbook through a Japan subaccount (JSA) CBDC Funding Program.
  - Purpose: support country authorities’ CBDC initiatives with CD, outreach and knowledge sharing with a focus on EMDEs, and specifically the analytical underpinnings, with the Handbook being the major output.
  - The Handbook’s ultimate objective: strengthen central banks’ capacity in CBDC to avoid a digital divide.
- Funding details:
  - Funding has been provided under two windows:
    - (1) JSA funding under the COVID-19 Window. JSA funding ($1.3 million) supports CD and analytical work from December 2021 to April 2023.
    - (2) JSA funding under the new Digital Money Window. JSA funding ($10.4 million) supports CD and analytical work from November 2022 to April 2025.
  - Coverage of AML/CFT and broader financial integrity issues is funded by the multi-donor Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Thematic Fund.

### Thematic areas of the CBDC Handbook — Objectives and Framework (selected chapters)
- Chapter 1 — “position” CBDC:
  - Introduce CBDC conceptually and differentiate it from alternative payment instruments, including fast payments and e-money.
  - Explore whether CBDC is superior to alternatives and discuss reasons to consider CBDC if other digital means of payment have been widely adopted.
  - Look ahead to the role of CBDC in supporting a broader digitalization of the economy.
- Chapter 2 — identify pain points and objectives:
  - Examine pain points and policy drivers related to payment and financial systems in member countries.
  - Evaluate how CBDC can address gaps in existing payment systems.
  - Discuss objectives such as promoting digitalization and financial inclusion, improving efficiency, ensuring resilience, reducing illicit use of money, fostering competition, and securing monetary sovereignty.
- Box 2 — CBDC CD to the Banco Central de Reserva del Perú (Leapfrogging through CBDC):
  - Context: low uptake of digital payments, nearly half the population unbanked; demand-side issues: high informality, low financial literacy, distrust; supply-side issues: limited mobile and internet coverage, limited access points in rural areas, lack of competition, high merchant fees, lack of interoperability—resulting in dependence on cash.
  - IMF assistance: strengthen capacity to assess feasibility of CBDC.
  - Design thinking approach: step back, ask tough questions, challenge assumptions, engage stakeholders.
  - Stakeholder research: 29 top-level leaders of 21 financial institutions and regulators interviewed; 27 citizens from rural and urban areas interviewed; findings highlighted motivational, capacity, and behavioral factors inhibiting adoption.
  - Roadmap and next steps: scoping mission in 2022 developed a roadmap; advised iterative, phased approach; encouraged drafting a white paper; assistance to design and execute an innovation challenge; follow-up mission produced an operating manual to understand requirements, resources, and process for an innovation challenge to assess payment system policy challenges.
- Chapter 3 — framework to guide countries:
  - Depict key elements policymakers need to consider for decisions on whether and how to issue CBDCs.
  - Discuss a high-level CBDC decision-making process and organization of a detailed feasibility study.
  - Cover potential policy objectives, foundational capacity of the central bank, risk and impact considerations, design choices, technology experimentation and implementation, project management, legal foundations, regulation, and supervision.
  - Examine interconnections among different elements to ensure adoption and mitigate risks.
- Foundational Requirements and Readiness (selected chapters):
  - Chapter 4 — legal foundation for CBDC issuance:
    - Analyze whether existing legal framework provides adequate foundation for robust CBDC issuance and when amendments might be needed.
    - Emphasize need for solid foundation in both public and private law and that legal certainty must exist before CBDC issuance.
    - Central banks must assess potential financial integrity risks and develop mitigating measures.
  - Chapter 5 — central bank cyber readiness and resilience:
    - Highlight best practices to build a secure and resilient CBDC ecosystem.
    - Discuss strengthening cyber resilience through internal organization of the central bank and central bank governance as provided for and governed by existing central bank laws (e.g., decision-making process, accountability, and committees).
  - Chapter 6 — capacity within central banks:
    - Relate experiences in setting up teams and building internal capacity to evaluate CBDC projects.
    - Cover design of institutions, points of inflection when teams typically grow, decision to build in-house versus outsourcing, and skillsets useful at each stage of CBDC evaluation.
    - Discuss potential risks for the central bank and capacities needed to assess and mitigate these risks.
    - Identify features of a robust governance and risk management framework for evaluation and deployment of CBDC.

*IMF APPROACH TO CENTRAL BANK DIGITAL CURRENCY CAPACITY DEVELOPMENT — excerpt from ppea2023016*

### 34.      The seventh chapter will focus on addressing new challenges to regulation and

### ppea2023016 - 34.      The seventh chapter will focus on addressing new challenges to regulation and

### Regulation and Supervision (Chapter 7)
- Will cover effective oversight and supervision of CBDC to ensure compliance with the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) as well as international standards applying to service providers, depending on CBDC design.
- Will discuss how to develop, implement, and communicate oversight and supervision policies.
- Will review institutional designs to support oversight and supervision while keeping these separate from operational functions.
- Will discuss the legal framework relevant to financial intermediaries involved in the issuance, distribution, and holding of CBDC as well as the interaction between CBDC and payments laws.
- Will cover the legal amendments needed to strengthen supervision and regulation and financial integrity.

### Design Process, Considerations, and Choices (Chapters 8–12)
- Chapter 8 (Design Choices)
  - Will identify design choices such as operating model, limits in holding, programmability, interest bearing, and degree of centralization.
  - Will map design choices into CBDC objectives and risks and identify apparent tradeoffs (example: tiered wallets protect privacy but risk undermining financial integrity or capital flow management measures (CFMs); limits on CBDC balances to mitigate disintermediation risk might discourage adoption).
- Chapter 9 (Business Models and Adoption)
  - Will clarify how the public sector can incentivize banks, nonbank payment service providers, and technology vendors to provide CBDC services.
  - Notes that access to transactions data will likely play a key role.
  - Will identify CBDC features and related programs that affect CBDC adoption, such as subsidies or communication strategies.
  - Will examine the costs of CBDC development and maintenance.
- Chapter 10 (Financial Integrity Considerations)
  - Will analyze financial integrity implications and ML/TF risks related to various CBDC design features.
  - Will discuss whether the central bank or the CBDC service providers will be responsible for mitigating financial integrity risks.
  - Recommends that jurisdictions should conduct an ML/TF risk assessment prior to launching CBDC.
  - Will explain that jurisdictions may need to update their AML/CFT frameworks, ensure relevant actors are regulated and subject to AML/CFT obligations and oversight, ensure proper implementation in a CBDC context, and ensure law enforcement bodies can investigate, prosecute, and seize, freeze, or confiscate proceeds involving CBDC.
- Chapter 11 (Data Use and Privacy Protection)
  - Will discuss what data are generated by CBDC transactions and which institutions might have access.
  - Will observe risks arising from accessing and storing data.
  - Will investigate the tradeoff between data use and privacy protection, focusing on macrofinancial implications such as market structure and contestability.
  - Will discuss how privacy-enhancing technologies can shift this tradeoff, unlocking greater economic value of data while maintaining privacy.
  - Notes that how countries manage this tradeoff will depend on country-specific circumstances and domestic considerations.
- Chapter 12 (Capital Flow Management Measures)
  - Will consider how CBDC can facilitate (or undermine) the implementation of CFMs.
  - Will be split into two parts: designing CBDC to support CFMs and adapting CFMs to foreign CBDCs.
  - Will concentrate on programming CFMs into CBDCs or into platforms used to exchange CBDCs across borders.

### Project Approaches and Technology (Chapters 13–14, Box 3)
- Chapter 13 (Project Management)
  - Will consider implementing a robust CBDC project management process aligned with a decision-making framework.
  - Will explore five steps to project management:
    - (1) preparation (scoping, defining success criteria, feasibility, assessing capacity and risks);
    - (2) PoA (assumptions validation);
    - (3) prototypes (technologies and partners selection);
    - (4) pilots (real production situation);
    - (5) production (final issuance and operation).
  - Will describe objectives, stakeholders, methodology, and options to run PoA, prototypes, and pilots.
  - Will emphasize exploiting data on CBDC use in pilots to shed light on adoption, risks, and new opportunities.
  - Will discuss legal considerations: distribution of legal responsibilities and liabilities between central banks and technology vendors; outsourcing rights; and obligations.
  - Will provide an evaluation methodology of a CBDC project and a final pre-launch checklist covering risk management and cybersecurity readiness, including a business continuity plan.
- Box 3 — CBDC CD to the Bangko Sentral ng Pilipinas: Piloting a Wholesale CBDC
  - BSP preparing to pilot a wholesale Central Bank Digital Currency (wCBDC) under Project CBDCPh.
  - Project addresses pain points: enhancement of cross-border payments, settlement of equity transactions in central bank money, and automation of intraday liquidity management.
  - Project aims to build capacity within BSP and supervised financial institutions via hands-on knowledge of a wCBDC system; focuses on domestic fund transfers among a limited number of financial institutions to inform a roadmap for future CBDC projects.
  - IMF engagements included a virtual engagement (training sessions and workshops on legal and macrofinancial implications, technology and design) and a field mission to assess value proposition and use cases.
  - Industry consultation highlighted pain points in debt securities settlements and cross-border payments; testing interbank payments, tokenized securities settlement, and cross-border payments involving a Peso wCBDC and a foreign wCBDC platform are strong candidates for future testing.
- Chapter 14 (Technology Landscape and Innovation)
  - Will review technology landscape and CBDC technology “stack,” and how to deal with vendors.
  - Will discuss relevant technologies and digital infrastructure and the role of technology in achieving objectives.
  - Will explain ways to explore technologies (labs, PoA, hackathons, call for tender) and considerations about fostering innovation.
  - Will address technical questions: (1) distributed ledger technology (DLT) and non-DLT; (2) offline access; (3) programmability; (4) resilience.

### Potential Macrofinancial Implications (Chapters 15–19)
- Chapter 15 (Financial Inclusion)
  - Will focus on CBDC’s role in promoting financial inclusion, especially in emerging market and low-income economies.
  - Will discuss potential effects that may improve or undermine inclusion and identify design features most prone to improving inclusion.
  - Will review complementary strategies to target the unbanked.
- Chapter 16 (Monetary Policy Transmission)
  - Will cover potential implications of CBDC for monetary policy transmission in different monetary policy regimes.
  - Will analyze likely impact of CBDC on channels including the interest rate, credit, exchange rate, and asset price channels.
  - Will analyze effects according to three predominant monetary policy regimes: (1) inflation targeting; (2) exchange rate targeting; (3) monetary aggregate targeting.
- Chapter 17 (Bank Disintermediation and Financial Stability)
  - Will provide a framework and analytical tools for appraising the impact of CBDC on bank disintermediation and financial stability.
  - Will investigate issues such as impact on bank runs, bank funding costs and structure, and currency runs.
  - Will discuss how policymakers should anticipate potential issues and make design choices to help safeguard the functioning of the financial system.
- Chapter 18 (Cross-Border Payments)
  - Will consider opportunities and risks associated with cross-border use of CBDC and potential designs for cross-border payments.
  - Will consider models to leverage CBDC to increase speed, transparency, and accessibility of cross-border payments and reduce costs.
  - Will consider implications for the level and volatility of capital flows.
  - Will support IMF (and World Bank) technical assistance on leveraging CBDC to enhance cross-border payments per Building Block 19 of the G20 Roadmap (FSB 2020).
- Chapter 19 (Market Structure and Contestability)
  - Will discuss impact of CBDC on financial sector market structure and contestability, and the role of banks and nonbanks.
  - Will explore how CBDC could compete with cash, commercial bank deposits, e-money, and cryptocurrencies.
  - Will draw on specific country experiences and investigate how CBDC introduction could increase contestability in the payments system.

### Governance, Development Process, and Publication Plan
- CBDC Handbook chapters will be limited to topics within the IMF’s mandate to ensure digital money fosters domestic and international economic and financial stability and will underpin the digital money strategy (IMF 2021).
- Development process will follow three parts:
  - First: staff will develop a Fintech Note for each chapter and seek comments from within and outside the IMF; consultations with external parties will occur via presentations, seminars, and comments on drafts.
  - Second: staff will brief the IMF Executive Board on key policy messages from Fintech Notes once a sufficient number of Fintech Notes with new policy messages has been published.
  - Third: new Handbook chapters will be published each year around the time of the Annual Meetings; chapters will build on Fintech Notes and be added to the online CBDC Handbook; outreach will inform countries as chapters are released; existing chapters will be updated as knowledge and experience build.

### Conclusions and Implementation Plan
- Observations:
  - Global interest in CBDC is unprecedented, with exploration around the world, but few real-world examples to learn from.
  - IMF member countries are seeking answers and lessons from other members.
  - There has been a sharp increase in demand from member countries for CBDC capacity development (CD).
  - Through bilateral CD and regional workshops, IMF staff are developing analytical and practical understanding of issues relevant to CBDC issuance.
  - The IMF, with global membership, is well-positioned to assist policymakers contemplating CBDC and strengthen central banks’ capacity building in CBDC.
- Handbook plan:
  - The paper sets out a plan to develop the CBDC Handbook to address issues most important for countries.
  - The Handbook aims to focus policymakers and foster convergence around an analytical and implementation agenda for CBDC.
  - IMF staff intends to pursue this agenda and draw on insights from policymakers, academicians, and other international organizations.
  - Emerging knowledge and experiences will be collated as chapters of a CBDC Handbook to serve as the basis of IMF CBDC CD engagement.
  - About 20 chapters are envisaged over the next four to five years, with four to five chapters produced per year.
  - The Handbook will be a “living” document, with published chapters updated and new chapters added as experiences and policy views evolve.
  - Ultimate aim: help countries make as well-informed decisions as possible when designing and issuing their own CBDC.

*Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023016.pdf*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023016.pdf_