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IMF presents Handbook on CBDCs, urges governments to explore further



During a keynote address at the Singapore FinTech Festival, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), asserted that central bank digital currencies (CBDCs) have the potential to replace traditional cash. 

The Managing Director (MD) highlighted that Central Bank Digital Currencies (CBDCs) are especially suitable for island economies due to their cost-effectiveness. The use of CBDCs can provide resilience in more advanced economies, offering an alternative that is less costly than traditional cash distribution. 

Moreover, CBDCs hold the potential to enhance financial inclusion in regions where a significant portion of the population lacks access to traditional bank accounts.

Central Bank Digital Currency (CBDC) is a digital form of a country’s fiat currency issued by the central bank. It is a new form of money that exists only in digital form, providing an alternative to physical banknotes and coins. 

They can be used for everyday transactions, such as payments between individuals and businesses (retail CBDC), as well as for settling trades in financial markets between financial institutions (wholesale CBDC). 

CBDCs are issued and operated by central banks, making them distinct from cryptocurrencies and stablecoins. They are designed to support public trust in money, maintain price stability, ensure safe and resilient payment systems, and promote financial inclusion. 

CBDCs have become a global concern where central banks and governments of nations are looking for alternatives to digital assets that crypto. It can be recalled that as of June 2023, 11 countries have adopted CBDCs, with a total of 53 in advanced planning stages and 46 researching the topic. 

Still, in support of the use of CBDCs, the IMF boss in her speech urged countries to continue exploring CBDCs, noting their role in providing a safe and low-cost alternative to cash. She also announced the launch of a CBDC Handbook on the IMF website to assist policymakers worldwide.

She added that it is important to design CBDCs to facilitate cross-border payments. “Efficient cross-border payments enable capital to reach its destination swiftly.

This facilitates the growth of small businesses beyond borders and households can receive essential funds from abroad. 

She called on countries that want to launch CBDCs to also think like entrepreneurs. “Communication strategies, and incentives for distribution, integration, and adoptionare as crucial as design considerations.”

While acknowledging the challenges, she highlighted the potential benefits of artificial intelligence in amplifying the advantages of CBDCs, such as improving financial inclusion through accurate credit scoring.

Finally, the MD concluded by likening the ongoing digital finance journey to a high-seas adventure, urging continued exploration and collaboration among international institutions, central banks, and ministries of finance.

She believes that CBDCs have the potential to create a more inclusive international financial system.

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