Central bank digital currencies can push the world away from depending on the U.S. dollar, the organization said.
The International Monetary Fund (IMF) released a handbook for global central banks regarding the development and implementation of central bank digital currencies (CBDCs).
The IMF’s “Central Bank Digital Currency Virtual Handbook” published last week pointed out that the increased use of CBDCs can “reduce dollarization” of the global economy—a situation where countries move away from relying on the U.S. dollar as a reserve currency. De-dollarization would push up borrowing costs in the United States, making loans expensive for businesses and individuals, thus affecting economic growth. Stock market values can also crash, reducing the savings and investments of Americans.
In addition to de-dollarization, a CBDC “could increase risks of flight to safety from retail bank deposits in periods of market stress.” During times of market volatility, customers withdraw their deposits and move it into safe assets to avoid losing money in scenarios like bank collapses.
If CBDCs were available, pulling out funds from a bank and putting them in such assets will come across as a safe option for many people, thus triggering a bank run.
The organization pointed out that CBDCs could offer “a safe store of value and efficient means of payment, which can increase competition for deposit funding, raise banks’ share of wholesale funding, and lower bank profits.”
The IMF handbook was published as the organization’s Director Kristalina Georgieva promoted the use of CBDCs during the Singapore FinTech Festival on Nov. 15, arguing that such digital currencies could bring an end to the cash-based economy.
“CBDCs can replace cash, which is costly to distribute in island economies,” she said during a speech. “CBDCs would offer a safe and low-cost alternative to cash. They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today, which we can withdraw from our banks.”
Back in May, Ms. Georgieva said that the world was heading towards widespread CBDC adoption without considering the risks involved in such a transition.
“What we are careful about is the choice between wholesale and retail CBDCs. We think that wholesale CBDCs can be put in place with fairly little space for undesirable surprises. Whereas retail CBDCs, they completely transform the financial system in a way that we don’t quite know what consequences it could bring,” she said during a discussion.