## Central Bank Independence and the Development of Payments and CBDCs

_IMF News, January 10, 2023_

## Source details

**Canonical URL:** [Central Bank Independence and the Development of Payments and CBDCs](https://www.imf.org/en/news/articles/2023/01/10/sp-central-bank-independence-development-payments-and-cbdc)

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## Bibliographic details
- Published: January 10, 2023

---

### Overview
- Title: Central Bank Independence and the Development of Payments and CBDCs
- Event: International Symposium on Central Bank Independence, Stockholm
- Speaker: Tobias Adrian, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department
- Date: January 10, 2023
- Key premise: Independence is a cornerstone of central banking, particularly for the monetary policy function, and must be preserved as central banks’ mandates expand to include payments and CBDCs.

### Evidence on independence and monetary policy
- Numerous studies validate the critical importance of independence for monetary policies aimed at low and stable inflation.
- IMF’s Central Bank Legislation Database shows most countries’ central bank laws contain “anchors” to safeguard central bank independence.
- Rationale: Insulating monetary policy from political interference helps avoid long-term risks to economic and financial stability and prevents short-term political gains from producing long-term pain such as higher inflation.

### Independence in the era of CBDCs
- Independence extends beyond monetary policy:
  - Basel Core Principles enshrine operational independence for the banking supervisor.
  - Principles for Financial Market Infrastructures encompass independence for payment systems and other financial market infrastructures.
- CBDC implications:
  - Operation of CBDCs—wholesale or retail—should in no case undermine independence.
  - Central banks must clearly communicate CBDC functions and interactions with monetary, payments, financial stability, and financial integrity policies; communications may evolve over time.
  - Additional safeguards for independence might be required depending on CBDC design and intended uses; amendments to existing legislation or new legislation may be needed.
  - Transparent and accountable arrangements are key.
  - The IMF’s Central Bank Transparency Code provides guidance through principles and best practices across central banking functions and promotes transparency to shape accountability and stakeholder dialogue.

### Challenges in CBDC exploration
- No firmly established principles exist yet for deciding whether to issue CBDCs or how to design them.
- Technological uncertainty questions include:
  - Which technology is best suited for CBDC?
  - Should centralized or decentralized technologies be used?
  - How should data be managed?
  - What are the macro-financial implications of cross-border CBDC use?
  - How to manage cyber security and other risks related to CBDC?
- Emerging consensus areas:
  - “Tiered wallets” and “managed anonymity” designs: small-value transactions similar to cash; larger-value transactions require fuller identity information.
  - Two-tier operational model: private firms (e.g., commercial banks) act as intermediaries between central banks and end users.
- Operational and adoption concerns:
  - Ensuring sustainable business models for intermediaries (cost recovery, merchant adoption).
  - Designing incentives for intermediaries to secure sufficient CBDC adoption and promote policy goals such as financial inclusion.
- Policy design principle: No “one size fits all”; countries need flexibility to design CBDCs to meet particular policy objectives while learning from global experience to minimize repeated mistakes.

### Role of the IMF
- IMF functions:
  - Facilitate information-sharing and capacity development on CBDCs to ensure member countries can access knowledge and build institutional capacity.
  - Integrate developments around digital money into regular surveillance: Article IV and FSAP missions consider potential effects from digital money.
  - Step up capacity development activities on digital money; work with authorities on risk mitigation and sound design principles.
  - Help ensure domestic CBDC decisions serve as a sound foundation for a stable global payments system.
- Multilateral cooperation:
  - IMF coordinates and cooperates with the World Bank, the Bank for International Settlements, the Financial Stability Board, and domestic authorities to achieve better outcomes.

### Key takeaways and policy recommendations
- Preserve central bank independence across all functions, including new payments and CBDC roles.
- Communicate clearly and transparently about CBDC objectives, functions, and interactions with monetary, payments, financial stability, and financial integrity policies.
- Consider legal and institutional safeguards—amend existing legislation or introduce new legislation where necessary—to protect independence given CBDC design choices.
- Favor transparent and accountable arrangements, leveraging guidance such as the IMF’s Central Bank Transparency Code.
- Encourage international information-sharing and capacity development to:
  - Learn from other countries’ experiences;
  - Minimize the risk of repeating costly mistakes;
  - Support policy objectives like financial inclusion while managing macro-financial and cyber risks.
- Allow significant policy space for country-specific CBDC designs rather than advocating a universal template.

*International Monetary Fund — Central Bank Independence and the Development of Payments and CBDCs (Tobias Adrian, January 10, 2023).*

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## References

- [Tobias Adrian](http://www.imf.org/external/np/bio/eng/ta.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF’s Central Bank Legislation Database](https://legacydata.imf.org/?sk=cb79523e-b2f8-4b4f-b304-0ab16198872f)
- [Central Bank Transparency Code](https://www.imf.org/external/datamapper/CBT/)
- [effectively manage risks](https://www.imf.org/en/Publications/WP/Issues/2021/04/23/Central-Bank-Risk-Management-Fintech-and-Cybersecurity-50278)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2023/01/10/sp-central-bank-independence-development-payments-and-cbdc_