Mr. Itai Agur, Jose Deodoro, Xavier Lavayssière, Soledad Martinez Peria, Mr. Damiano Sandri, Hervé Tourpe, and Mr. German Villegas Bauer
Whether in crypto assets or in CBDCs, design choices can make an important difference to the energy consumption of digital currencies. This paper establishes the main components and technological options that determine the energy profile of digital currencies. It draws on academic and industry estimates to compare digital currencies to each other and to existing payment systems and derives implications for the design of environmentally friendly CBDCs. For distributed ledger technologies, the key factors affecting energy consumption are the ability to control participation and the consensus algorithm. While crypto assets like Bitcoin are wasteful in terms of resources, other designs could be more energy efficient than existing payment systems.
Gabriel Soderberg, Ms. Marianne Bechara, Wouter Bossu, Ms. Natasha X Che, Sonja Davidovic, Mr. John Kiff, Ms. Inutu Lukonga, Mr. Tommaso Mancini Griffoli, Tao Sun, and Akihiro Yoshinaga
Central banks are increasingly pondering whether to issue their own digital currencies to the general public, so-called retail central bank digital currency (CBDC). The majority of IMF member countries are actively evaluating CBDCs, with only a few having issued CBDCs or undertaken extensive pilots or tests. This paper shines the spotlight on the handful of countries at the frontier in the hope of identifying and sharing insights, lessons, and open questions for the benefit of the many countries following in their footsteps. Clearly, what can be gleaned from these experiences does not necessarily apply elsewhere. The sample of countries remains small and country circumstances differ widely. However, the insights in this paper may inspire further investigation and allow countries to gain time by building on the experience of others. Importantly, the purpose of this paper is not to evaluate the courses taken by different jurisdictions, but to study and discuss their key experiences and lessons. The paper studies six advanced CBDC projects, drawing on collaboration and exchanges with the respective central banks to get insights beyond what has previously been published. Unless a specific published source is cited, all information stems from interviews and workshops with members of CBDC project teams in each jurisdiction.
Ms. Marianne Bechara, Wouter Bossu, Ms. Yan Liu, and Arthur Rossi
Fintech presents unique opportunities for central banks. The rapid changes in technology that are transforming the financial system will allow central banks to enhance the execution of various of their core functions, such as currency issuance and payment systems. But some aspects of fintech pose major challenges. Central banks have always been at the cutting edge of financial technology and innovation. In the past, the invention of the banknote, the processing of payments through debits and credits in book-entry accounts, and the successive transitions of interbank payment systems from the telegraph to internet protocols were all transformative innovations. Today, central banks are facing new and unprecedented challenges: distributed ledger technology, new data analytics (artificial intelligence [AI] and machine learning), and cloud computing, along with a wider spread of mobile access and increased internet speed and bandwidth. The purpose of this note is to discuss the authors’ preliminary views on how, from a legal perspective, central banks can best deal with the impact of fintech on their governance. These preliminary views are based on a review of central banks’ reaction thus far to the challenges posed by fintech to the legal foundations of their governance.
Rapid technological innovation is ushering in a new era of public and private digital money, bringing about major benefits in terms of efficiency and inclusion. To reap the full benefits and manage risks, authorities around the world will have to address new policy challenges. These are widespread, complex, rapidly evolving, and have profound implications. This paper identifies the main challenges currently arising regarding consumer protection and financial integrity, domestic financial and economic stability, as well as the stability and efficiency of the international monetary system. The paper argues that many of these challenges intersect the Fund’s mandate. The Fund must therefore monitor, and advise on, this rapid and complex transition for all members. The paper ends with a broad vision of how to deliver on this mandate and serve its members, including by enhancing resources, and collaborating closely with other institutions. This is the first of two papers, the second of which lays out a more detailed operational strategy.
Following the companion paper on the new policy challenges related to the adoption of digital forms of money, this paper presents an operational strategy for the IMF to continue delivering on its mandate of ensuring domestic and international financial and economic stability. The paper begins by summarizing the forces driving the adoption of digital forms of money, and the new policy questions that emerge. It then focusses on how the IMF’s core activities and output will need to evolve, including surveillance, capacity development, and analytical foundations. It ends by discusses how the IMF intends to partner with other organization, and to grow and structure internal resources to fulfill this vision.
Mr. John Kiff, Jihad Alwazir, Sonja Davidovic, Aquiles Farias, Mr. Ashraf Khan, Mr. Tanai Khiaonarong, Majid Malaika, Mr. Hunter K Monroe, Nobu Sugimoto, Hervé Tourpe, and Peter Zhou
This paper examines key considerations around central bank digital currency (CBDC) for use by the general public, based on a comprehensive review of recent research, central bank experiments, and ongoing discussions among stakeholders. It looks at the reasons why central banks are exploring retail CBDC issuance, policy and design considerations; legal, governance and regulatory perspectives; plus cybersecurity and other risk considerations. This paper makes a contribution to the CBDC literature by suggesting a structured framework to organize discussions on whether or not to issue CBDC, with an operational focus and a project management perspective.
International Monetary Fund. Western Hemisphere Dept.
This paper highlights The Bahamas’ Request for Purchase Under the Rapid Financing Instrument (RFI). The coronavirus disease 2019 (COVID-19) pandemic comes on the heels of the widespread destruction caused by Hurricane Dorian in September 2019. Coupled with domestic containment measures, the collapse in tourism will cause a deep recession. The Bahamian authorities have taken timely and targeted measures to boost health spending and mitigate the socioeconomic impact of the pandemic, supporting jobs and vulnerable segments of the population. The disbursement under the RFI will help boost resources for essential COVID-19-related outlays, strengthen reserves, and catalyze additional support from other international financial institutions, development partners, and the private sector. In order to address the urgent fiscal needs, the central bank will on-lend the disbursement to the Ministry of Finance. The IMF staff is confident that the authorities will pursue appropriate policies for alleviating the impact of the pandemic, based on the country’s strong track record. The Bahamas is assessed to have sustainable debt and adequate capacity to repay the IMF.