## Explaining Central Bank Digital Currency to Mom ## Source details **Canonical URL:** [Explaining Central Bank Digital Currency to Mom](https://www.imf.org/en/publications/fandd/issues/2021/03/what-are-central-bank-digital-currencies-mancini-griffoli) ## Other formats - [Markdown version](/en/publications/fandd/issues/2021/03/what-are-central-bank-digital-currencies-mancini-griffoli/index.md) - [Structured JSON version](/en/publications/fandd/issues/2021/03/what-are-central-bank-digital-currencies-mancini-griffoli/index.json) - [Bundle manifest](/en/publications/fandd/issues/2021/03/what-are-central-bank-digital-currencies-mancini-griffoli/bundle-manifest.json) ## Bibliographic details - Authors: TOMMASO MANCINI-GRIFFOLI - Published: March 1, 2021 --- ### Overview and explanation - Central bank digital currency (CBDC) described as "a digital form of cash" that can be held on a phone in an app called a "digital wallet". - Users could: - Transfer money to the digital wallet from a bank account. - Receive and hold balances received from others (for example, instead of sending a picture via phone, a family member could send unused euros). - Registration and identity: - Users might have to register and provide passport and other information to obtain a digital wallet, primarily for anti–money laundering and counterterrorist financing purposes. - Privacy trade-offs: - Cash offers anonymity; the extent to which countries allow anonymity in CBDC spending is an open question. - Possible distinction in practice: small purchases (e.g., buying cake) might be allowed more privacy than large transactions (e.g., buying a new car). ### Motivations and potential advantages - Lowering costs of handling cash, especially across vast territories or multiple islands. - Improving financial inclusion by providing access to a means of payment as cash use diminishes, and serving as a first step to other financial services like savings accounts and loans. - Providing a domestic alternative to payment systems dominated by a few large, often foreign, companies; serving as a backup and inducing private sector efficiency and low-cost services. - Spurring innovation: a new digital currency could foster development of new services and applications, analogous to the effect of personal computers or smartphones. - Real-world example cited: The Bahamas already has a central bank digital currency. - Contextual drivers: - During the pandemic, fewer stores accept cash because of health concerns. - Practical inconveniences: branch closures forcing detours to withdraw cash; instances where merchants may not have change (example: a baker potentially unable to give change for €50). ### Risks and systemic concerns - Payments are systemically important; CBDC systems must not crash, be subject to cyberattacks, or facilitate criminal activity like money laundering or financing terrorism. - Bank funding risk: - Risk that individuals withdraw savings from banks to hold only CBDC, which could disrupt banks’ ability to channel savings to finance loans (example: baker needing a loan for a new oven). - Possible policy measures: central banks may impose fees if users hold more than a certain amount of digital currency. - Cross-border and foreign-currency issues: - People may hold a foreign CBDC if it is perceived as safer, more stable, or more efficient, posing problems for domestic banking systems and for central banks’ monetary policy transmission. - Managing cross-border flows in and out of digital currencies is described as "a big open issue" under active work. - Institutional and operational demands: - Central banks could face increased credibility risk and significant demands, potentially needing capabilities more akin to a software company to keep pace with technology and user needs. ### Role of the private sector and operational design - Private sector can partner with central banks to extend functionality: - Private firms could enable user-friendly features (for example, sending money to a phone number linked to a verified identity). - Private firms may design digital wallets that hold official digital currencies. - Private firms could create their own digital currencies, but these would need to be fully backed and supervised by the central bank (contrasted with many crypto coins). - Central banks need not implement all functions alone; partnerships can help deliver safe, stable, and efficient means of payment to users. ### Tone and conclusion - The author emphasizes cautious and deliberate central bank action: CBDCs offer considerable potential advantages, but central banks are "proceeding cautiously, and rightly so." - The author frames CBDC adoption as likely a matter of "when, not if," given existing implementations and widespread testing and investigation. - Personal note: the explanation is framed as a letter to the author’s mother, acknowledging personal preferences for cash while outlining technological and policy considerations. *International Monetary Fund — March 2021* --- ## Content in this bundle - **أمي الحبيبة، أنصحك أن تنسي النقود** - [أمي الحبيبة، أنصحك أن تنسي النقود (Markdown version)](/-/media/files/publications/fandd/article/2021/march/ar/mancini-griffoli-ar.pdf.md){rel="alternate" type="text/markdown"} - [أمي الحبيبة، أنصحك أن تنسي النقود (PDF)](/-/media/files/publications/fandd/article/2021/march/ar/mancini-griffoli-ar.pdf){rel="external" type="application/pdf"} - **亲爱的母亲，忘记现金吧 - 金融与发展 - 国际货币基金组织季刊 -2021年3月号·第58卷** - [亲爱的母亲，忘记现金吧 - 金融与发展 - 国际货币基金组织季刊 -2021年3月号·第58卷 (Markdown version)](/-/media/files/publications/fandd/article/2021/march/chn/mancini-chn.pdf.md){rel="alternate" type="text/markdown"} - [亲爱的母亲，忘记现金吧 - 金融与发展 - 国际货币基金组织季刊 -2021年3月号·第58卷 (PDF)](/-/media/files/publications/fandd/article/2021/march/chn/mancini-chn.pdf){rel="external" type="application/pdf"} - **Explaining Central Bank Digital Currency to Mom – IMF F&D** - [Explaining Central Bank Digital Currency to Mom – IMF F&D (Markdown version)](/-/media/files/publications/fandd/article/2021/march/en/what-are-central-bank-digital-currencies-mancini-griffoli-en.pdf.md){rel="alternate" type="text/markdown"} - [Explaining Central Bank Digital Currency to Mom – IMF F&D (PDF)](/-/media/files/publications/fandd/article/2021/march/en/what-are-central-bank-digital-currencies-mancini-griffoli-en.pdf){rel="external" type="application/pdf"} - **Querida mamá: olvídate del dinero en efectivo ● Finanzas y Desarrollo ● Marzo de 2021** - [Querida mamá: olvídate del dinero en efectivo ● Finanzas y Desarrollo ● Marzo de 2021 (Markdown version)](/-/media/files/publications/fandd/article/2021/march/es/what-are-central-bank-digital-currencies-mancini-griffoli-es.pdf.md){rel="alternate" type="text/markdown"} - [Querida mamá: olvídate del dinero en efectivo ● Finanzas y Desarrollo ● Marzo de 2021 (PDF)](/-/media/files/publications/fandd/article/2021/march/es/what-are-central-bank-digital-currencies-mancini-griffoli-es.pdf){rel="external" type="application/pdf"} - **Maman, oublie les espèces** - [Maman, oublie les espèces (Markdown version)](/-/media/files/publications/fandd/article/2021/march/fr/what-are-central-bank-digital-currencies-mancini-griffoli-fr.pdf.md){rel="alternate" type="text/markdown"} - [Maman, oublie les espèces (PDF)](/-/media/files/publications/fandd/article/2021/march/fr/what-are-central-bank-digital-currencies-mancini-griffoli-fr.pdf){rel="external" type="application/pdf"} - **Мама, забудь про наличные – Финансы и развитие – март 2021 года** - [Мама, забудь про наличные – Финансы и развитие – март 2021 года (Markdown version)](/-/media/files/publications/fandd/article/2021/march/ru/mancini-ru.pdf.md){rel="alternate" type="text/markdown"} - [Мама, забудь про наличные – Финансы и развитие – март 2021 года (PDF)](/-/media/files/publications/fandd/article/2021/march/ru/mancini-ru.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2021/03/what-are-central-bank-digital-currencies-mancini-griffoli_