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Key IMF Figure Weighs Central Bank Digital Currency

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Key IMF Figure Weighs Central Bank Digital Currency

In a speech delivered on 28 February 2020, by the Deputy Managing Director of London School of Economics, International Monetary Fund (IMF), Tao Zhang, the pros and cons of a central bank digital currency were considered.

The Positive Aspects of a CBDC

Mr. Zhang highlighted that a CBDC reduces the cost of transactions effectively. In some countries, owing to geographical factors, a part of the population may not have access to the payments system. Furthermore, people in rural areas or those belonging to the poorer classes may not be capable of availing traditional banking systems owing to infrastructure or higher costs. CBDC provides a solution to these issues.

Mr. Zhang also noted that CBDC might prove to be more inclusive and it might be the alternative for those who do not have a bank account. He also named some other benefits of CBDC, including better stability and a strengthened monetary policy.

He also added that a CBDC backed by a trusted government might help in limiting the use of privately issued currencies like stablecoins. These could prove to be difficult to regulate and might bring about an imbalance in financial stability and monetary policy transmission.

The Negative Aspects Too

The director also pointed out some negative aspects of the CBDC, like taking away the customers of the banks and consequently putting a strain on central bank balance sheets.

He also added that offering full-fledged CBDC could prove to be costly for the central banks and may lead to damage to their reputation. This could happen if a major hacking takes place and thus leave the bank’s trustworthiness in distress.

He also offered a CBDC, or an asset resulting due to a collaboration between central banks and private entities, as a possible solution.

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I am a content writer with interests in life sciences and blockchain. I believe that blockchain has the potential to transform every aspect of human endeavor. I love surfing the internet, reading, learning new things, and trying new cuisines.

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