Central Bank Digital Currency Development Enters the Next Phase

IMF Blog, November 20, 2023

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Bibliographic details

• Authors: Tobias Adrian, Dong He, Tommaso Mancini-Griffoli, Tao Sun
• Published: November 20, 2023

Overview

• Title: Central Bank Digital Currency Development Enters the Next Phase
• Authors: Tobias Adrian, Dong He, Tommaso Mancini-Griffoli, Tao Sun
• Date: November 20, 2023
• Core point: Central bank digital currencies (CBDCs) can improve payment systems and financial inclusion if appropriately designed; poorly designed CBDCs could pose risks.
• Strategic recommendation: In most cases, it would be useful for countries to continue exploring CBDC carefully and systematically.

Current adoption and status

• Countries that have introduced CBDCs: The Bahamas, Jamaica, and Nigeria.
• Exploration stage: More than 100 countries are in the exploration stage.
• Leading central banks mentioned: Brazil, China, the euro area, India, and the United Kingdom.

IMF resources and knowledge-sharing

• IMF initiative: Launched a virtual CBDC Virtual Handbook to collect and share knowledge with policymakers and to serve as a basis for the IMF’s engagement with country authorities.
• Handbook approach: Intended as a living document to be updated and expanded as the IMF’s body of knowledge and analysis grows and as new lessons and insights emerge from countries.
• Published chapters so far cover process and policy topics (summaries below).

Summaries of published chapters

• How Should Central Banks Explore Central Bank Digital Currency?
  • Central banks will take different paths depending on the degree of digitalization of the economy, the legal and regulatory frameworks, and the central bank’s capacity.
  • Proposes a dynamic decision-making process in which central banks can proceed despite uncertainty, and adjust the pace, scale, and scope of their initiatives in response to changes in domestic and international conditions.
• A Guide to Central Bank Digital Currency Product Development.
  • Provides a step-by-step guide to address complex requirements and risks associated with CBDCs.
  • Introduces the 5P methodology: preparation, proof-of-concept, prototypes, pilots, and production.
• Implications of Central Bank Digital Currencies for Monetary Policy Transmission.
  • Analyzes how CBDCs would likely affect monetary policy.
  • Summarizes: In general, policy transmission is not expected to be affected much under normal circumstances, but the effects can be more significant in an environment with low interest rates or financial market stress.
• Implementing capital flow management measures with CBDC.
  • Explains how CBDCs could be designed to facilitate cross-border payments while still managing capital flows.
  • Notes that programmable payment infrastructure could allow some capital-flow management measures to be implemented more efficiently and effectively with a CBDC compared to the traditional approach.
• Central Bank Digital Currency's Role in Promoting Financial Inclusion.
  • Positions CBDCs as a risk-free and widely acceptable form of digital money with potentially lower costs and greater accessibility.
  • If properly designed to replicate some properties of cash, CBDCs could gain acceptance as a payment mechanism for financially excluded populations and be an entry point to the broader formal financial system.

Risks, policy considerations, and analytical priorities

• Design trade-offs: Benefits are more likely to come in time, depending on policies pursued by countries, the private sector’s response, and the evolution of technology.
• Monetary policy: Monitor effects on policy transmission, especially under low interest rates or financial market stress.
• Capital flows and cross-border payments: Explore CBDC design options that facilitate cross-border payments while enabling capital-flow management measures; leverage programmability of payment infrastructure.
• Financial inclusion: Design CBDCs to replicate key properties of cash to increase acceptance among financially excluded populations.
• Other assessment areas to continue: financial stability, cybersecurity, and cross-border payments.

IMF engagement and collaboration outlook

• Future work: IMF will keep assessing potential effects of CBDCs across multiple areas and build on the first five chapters with new publications planned for next year.
• Collaboration: IMF will continue collaboration with other global bodies, including the Group of Twenty and the Bank for International Settlements.
• Ongoing assistance: The IMF will continue assisting countries exploring CBDCs.

Source: Central Bank Digital Currency Development Enters the Next Phase — Tobias Adrian, Dong He, Tommaso Mancini-Griffoli, Tao Sun; November 20, 2023

References

• speech
• CBDC Virtual Handbook
• How Should Central Banks Explore Central Bank Digital Currency?
• A Guide to Central Bank Digital Currency Product Development
• Implications of Central Bank Digital Currencies for Monetary Policy Transmission
• Implementing capital flow management measures with CBDC
• Central Bank Digital Currency's Role in Promoting Financial Inclusion