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There are also many negativities that Central Bankers focus on when it comes to the use of digital currencies for international or even local transactions.
With a unanimous agreement that digital currencies are bad for the environment, officials of the International Monetary Fund (IMF) are pushing for a new global payment system through Central Bank Digital Currencies (CBDCs) that will remove the bottlenecks in today’s cross-border transactions.
In its quarterly magazine, Finance & Development, IMF authors gushed about the potential positive impacts of state-backed monetary solutions such as CBDC. The hopes for revolutionary cryptocurrency alternatives were downplayed.
Tobias Adrian, the Director of the IMF’s monetary and capital markets department placed emphasis on the interconnectedness that CBDCs can have when most countries have theirs launched. He is advocating for the IMF to create a system that would accept CBDCs, hold them in escrow, and issue a token against them. This way, many CBDCs will not just work together, but it will drastically cut the costs of international transfers.
“The private sector would be able to extend the uses of the platform by writing smart contracts,” Adrian said, emphasizing how the proposed system will be a one size fits all model.
Many users around the world are already adopting Bitcoin (BTC), Ethereum (ETH), and stablecoins for value transfer around the world. Despite their increasing usage across the board, Central Bankers had never really supported their use, except for countries like El Salvador, Ukraine, and the Central African Republic (CAR) where Bitcoin now has a legal status.
While not disputing the superiority of the privately issued digital assets over the current payment system, the onus lies on governments to debut another alternative that is considered safer. With the help of the IMF, the CBDCs project of some countries have been placed on trials to ascertain their cross-border functionalities.
A good example is the cross-border testing of a CBDC system between South Africa and Australia. The result of this trial showed that this transaction model is “Technical Viable” and efforts are being concentrated to develop these systems in a more sustainable way.
IMF Advocacy for CBDCs Over Crypto
There are many negativities that Central Bankers focus on when it comes to the use of digital currencies for international or even local transactions. Many believe these nascent asset classes provide a form of shield for money laundering, drawing on its cryptographic features.
“Any legitimate transaction that can be carried out with crypto can be accomplished better with central bank money,” BIS General Manager Agustín Carstens wrote in an article published Thursday. “Crypto is neither stable nor efficient … its participants are not accountable to society. Frequent fraud, theft, and scams have raised serious concerns about market integrity.”
Without a concerted timeline to float these government-backed digital currencies across the board, many individuals will still be choosing crypto over current money transfer systems whose settlement can take days. This way, governments will be forced to introduce functional regulations that can permit the use of these assets, but in a responsible manner.
Pending when most countries float their CBDCs, regulations are considered the best short-term solution for now.