Many institutions, including central banks, are showing interest in the recently introduced Nigerian central bank digital currency (CBDC), according to the International Monetary Fund (IMF). Despite this, the fund warns that the CBDC poses monetary policy implementation, cyber security, operational resilience, and financial integrity and stability risks.
During the Atlantic Council, Kristalina Georgieva, managing director of the IMF said that “eNaira and other well-designed central bank digital currencies (CBDCs) are no match for crypto assets and stable coins.”
According to her, countries’ central banks are looking into CBDCs, which she believes could soon supplant cryptocurrencies and become a mainstay.
“If CBDCs are constructed wisely, they have the potential to provide better resilience, safety, availability, and cheaper prices than private forms of digital money. CBDCs are still in their early stages, and we don’t know how far or quickly they will progress. CBDCs, if well built, have the potential to provide higher resilience, safety, availability, and cheaper costs than private forms of digital money.” she said
“When contrasted to unbacked crypto assets, which are fundamentally volatile, that is certainly the case. Even the most managed and regulated stablecoins may fall short of a stable and well designed central bank digital currency.” she added
The IMF chief also indicated that over 100 countries are looking into Central Bank Digital Currencies. She listed the Bahamas’ Sand Dollar, Sweden’s Riksbank’s proof-of-concept, China’s e-CNY, and Nigeria’s eNaira.
Georgieva revealed:
“The IMF is deeply involved in this issue, including through providing technical assistance to many members. An important role for the Fund is to promote exchange of experience and support the interoperability of CBDCs.”
She shared some of the lessons learned from various central banks from their digital currency efforts.
Firstly, she said:
“There is no universal case for CBDCs because each economy is different … So, central banks should tailor plans to their specific circumstances and needs.”
Secondly, she stressed that financial stability and privacy considerations are paramount to the design of CBDCs.
The IMF Chief noted:
“In many countries, privacy concerns are a potential deal-breaker when it comes to CBDC legislation and adoption. So it’s vital that policymakers get the mix right.”
Thirdly, she stressed the balance between developments on the design front and the policy front.