IMF To Release CBDC Guide As Demand For Framework Rises

Updated: 14 April 2023

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The International Monetary Fund (IMF) is currently experiencing a high demand for guidance on central bank digital currencies (CBDCs), with an interest in them reaching an “unprecedented” level. To address this, the IMF’s deputy managing director, Bo Li, announced in a recent speech that the organization has planned to release a handbook on CBDCs.

Deputy Managing Director Bo Li: #CBDC has profound implications for monetary policy & fin stability. If properly designed and implemented, it could strengthen the usability, resilience & efficiency of payment systems & increase fin inclusion: https://t.co/a1GQRhsDLO pic.twitter.com/GuKgaWcxpv

— IMF (@IMFNews) April 12, 2023

The Central Bank Digital Currency Handbook

There is a sense of urgency for the IMF to guide as many central banks plan to launch their CBDCs. In the past two years, almost 30 countries have requested help from the IMF, with over 40 countries reaching out.

The International Monetary Fund (IMF) is currently addressing the potential risks associated with poorly designed Central Bank Digital Currencies (CBDCs) by producing a handbook. This handbook will serve as a basis for capacity development and provide information, experience, empirical findings, and frameworks to evaluate CBDCs.

The IMF staff report shows that the handbook will be mostly descriptive rather than prescriptive to be completed over four-to-five years. Major funding for the handbook will come from Japan. It will have 19 chapters, divided into broad sections covering policy and technical issues.

As policymakers consider concrete questions relating to CBDCs, the IMF’s advice has become more tailored to country-specific circumstances and anchored in policy experience and frameworks. The IMF plans to prioritize help for systemically important countries and those fast-tracking CBDC developments but with relatively high-capacity constraints or weak regulatory standards.

In its recent “Global Financial Stability Report,” the International Monetary Fund (IMF) reiterated the need for “comprehensive and consistent regulation” and “adequate supervision” in the financial sector. The report highlights the importance of regulatory oversight following the collapse of crypto firms and pro-crypto banks, Silicon Valley Bank and Signature Bank, in 2022. The IMF suggests that regulatory oversight of crypto entities should cover digital asset storage, transfer, exchange, and custody and calls for strict prudential requirements for stablecoin issuers.

The Rise of Central Bank Digital Currencies (CBDCs)

Unsurprisingly, central banks are interested in digital currencies. They feel pressure to promote employment and manage price levels because of the impact of nearly two years of lockdowns and other mobility restrictions, coupled with rising inflation, on their “dual mandate.” Central banks worldwide have bought a significant amount of bonds, expanding the money supply, and potentially further contributing to inflation.

Over the past two years, the Federal Reserve has expanded the US money supply from approximately $4 trillion to over $20 trillion, and we are only now witnessing the resulting inflationary effects.

Many countries have already developed or are exploring the possibility of developing their own Central Bank Digital Currencies (CBDCs). These include the United States, which has joined over 100 countries in this pursuit. Most CBDCs take a hybrid approach, where the central bank issues the digital currency to banks and payment service providers, who then distribute it to users and offer them account-related services.

However, leading experts at the Bank for International Settlements have identified other types of CBDCs. One type is synthetic CBDC, where the consumer holds a claim through an intermediary, with the central bank only monitoring wholesale accounts.