CBDCs and Multilateral Payment Platforms

IMF News, November 28, 2023

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Published: November 28, 2023

Key findings and context

New forms of money and new technologies have the potential to improve payment systems, enhance financial inclusion, and facilitate cross-border payments.
Central bank digital currencies (CBDCs) have gained significant attention, with approximately 60% of countries exploring their potential.
CBDCs may have various benefits, such as replacing cash in island economies, enhancing resilience in more advanced economies, and improving financial inclusion.
Tokenization of financial assets, such as bonds issued on blockchains, opens doors for CBDCs to be used in wholesale forms of payment.
The IMF's new CBDC Virtual Handbook provides valuable guidance to support countries in their exploration of CBDCs.

Cross-border payments: problems and medium-term solutions

Sending funds across jurisdictions is still too expensive, slow, and limited in availability.
Improving cross-border payments is necessary for users, inclusion, and business efficiency, and to avoid:
- fragmentation in capital flows and compliance with international standards;
- diminished effectiveness of policies for monetary and financial stability.
Medium-term solutions could leverage new technologies, including infrastructure based on blockchain technology to facilitate settlement (not just clearing) of cross-border payments.
Proposed infrastructure (“cross-border platforms”) could:
- facilitate the exchange of CBDCs in wholesale or retail form;
- interface with traditional forms of money;
- provide FX conversion; and
- manage payment risks.
Use cases could be both small-value and large-value payments.

Role of the public sector and policy objectives

The public sector should actively investigate and establish desirable features to support policy objectives, even as the private sector pilots on-chain financial asset transfers.
Policy objectives for platforms include:
- operational efficiency and stability;
- market contestability and integration;
- innovation;
- applicability to large-value and low-value payments and financial inclusion;
- effective monitoring;
- data integrity and privacy;
- implementation of domestic macro-financial policies;
- monetary sovereignty and financial stability;
- limited spillover effects;
- evenhandedness; and
- fair representation.
There should be no presumption that platforms are necessarily desirable, nor of who should build and operate them—public or private.
If the private sector is involved, platforms should still be designed to facilitate the payment and financial needs of the underserved, to the extent they are compliant with rules and standards.

Governance, oversight, and legal challenges

Solid governance and oversight are needed to align infrastructures with policy objectives and ensure participant compliance with rules and standards.
Trust in appropriate compliance checks is fundamental to safeguarding financial integrity.
Key questions and challenges include:
- who will be responsible for application of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures and for monitoring compliance;
- determining the jurisdictional domicile of the platform;
- ensuring coherence of legal requirements of participating jurisdictions;
- addressing legal uncertainties including smart contracts, data protection, and roles and responsibilities of operating and oversight bodies.

Technology, competition, and market dynamics

New technologies like programmability and encryption offer functionalities that could increase efficiencies and enable new solutions and business models.
Competition from purely private solutions (including stablecoins and cryptoassets) pushes the public sector to improve infrastructures and services and to counter forces of fragmentation that could undermine the International Monetary System.
Collaboration among international institutions, central banks, and ministries of finance is crucial to provide guidance and set design contours for cross-border platforms.
The IMF is committed to playing its part in this collaborative effort.

Speech by Tobias Adrian, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department; Atlantic Council Conference on Exploring Central Bank Digital Currency: Evaluating Challenges & Developing International Standards; November 28, 2023.