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Central bank digital currencies (CBDCs) have been at the heart of discussions in many central banks worldwide. According to central banks, CBDCs can potentially improve the current fiat system.
BIS executives admit to the benefits of digital technologies
A publication by the International Monetary Fund (IMF) said that the technical capability of cryptocurrencies, and the trust and transparency built by the central banks, were vital in supporting the growth of a rich monetary ecosystem.
The publication, which was authored by the deputy managing director for the IMF, Agustin Carstens, and BIS executives Jon Frost and Hyun Song Shin, said that digital technologies created an optimistic view of the future of the monetary system.
A study conducted by BIS in June also revealed that cryptocurrencies had the potential to outperform fiat ecosystems when it came to achieving the high-level objectives of a monetary system that would support future demands.
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While apparent benefits came from these digital technologies, the IMF also pointed out some disadvantages. They said that the most significant flaw preventing the mainstream adoption of crypto assets was the volatility of crypto assets. Moreover, there was also the concern of congestion in the decentralized finance (DeFi) sector.
The publication further added that wholesale and retail CBDCs could derive some of their abilities from the cryptocurrency sector, which could benefit the end users. The executives said that by embracing the trust offered by central banks, the private sector could use new technologies to promote a rich and diverse monetary sector.
The BIS executives also recommended central banks looking to adopt digital technologies. They said these institutions should use various innovations, such as tokenization, to support purchases made using multiple fiat currencies. This would further benefit the customers and merchants.
Recession in the crypto market
Despite the apparent benefits that come from the adoption of blockchain technology, the IMF has raised concerns over an incoming recession in the crypto space. The prices of various cryptocurrencies have plunged this year and erased most of the gains made during the past year. The downturn comes amid geopolitical tensions and a gloomy global economy.
The IMF has also talked about the liquidations in the sector and the bankruptcy filings of firms like Voyager, Celsius, and Three Arrows Capital. The institution said these events had little impact on the traditional financial systems.
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