CBDCs: The Future of Global Economy?

In an address at the Singapore FinTech Festival 2023, IMF’s Managing Director, Kristalina Georgieva, emphasized the need for public sectors worldwide to prepare for the deployment of central bank digital currencies (CBDCs) and related payment platforms.

CBDCs: A Step Towards Cashless Economies

Georgieva highlighted the potential of CBDCs to replace physical cash, especially in island economies where cash distribution is costly. She noted that CBDCs could also enhance resilience in advanced economies and boost financial inclusion in regions where few people hold bank accounts.

CBDCs are the digital equivalents of a country’s fiat currency, regulated by the central bank and facilitated by blockchain technology. This new form of currency allows direct government payments to households, offering a safe and low-cost alternative to cash.

Growing Global Interest in CBDCs

The IMF reports that over 60% of the world’s countries are exploring CBDCs, indicating a significant global interest in this new form of currency. In a 2022 survey by the Bank for International Settlements, 93% of the 86 central banks surveyed were exploring CBDCs, with 58% likely to issue a retail CBDC in the short or medium term.

However, as of June 2023, only 11 countries have adopted CBDCs, with 53 others in advanced planning stages, and 46 conducting research on the concept.

The Voyage Towards Digital Currencies

Reflecting on a 2018 speech by her predecessor Christine Lagarde, Georgieva highlighted the progress made in the exploration of CBDCs. Since that speech, many countries have begun investigating CBDCs and developing regulations to guide digital money developments.

Despite the progress, Georgieva stressed that the voyage is far from over, with ample space for innovation and uncertainty over use-cases. She urged countries, even those where the case for CBDCs seems dim, to remain open to the possibility of deploying CBDCs in the future.

The Potential of CBDCs and AI

Countries such as the Bahamas, Jamaica, and Nigeria have already issued retail CBDCs. Meanwhile, the Monetary Authority of Singapore has noted the incompatibility of physical cash with the digital economy, predicting a further decline in cash demand.

Georgieva noted the potential of CBDCs to lower costs of obtaining, storing, and spending foreign currency in cross-border transactions, depending on design and regulations. She also suggested that artificial intelligence could enhance the benefits of CBDCs by providing accurate credit scoring and personalized support. However, she emphasized the need to safeguard personal privacy, data security, and avoid embedded biases to prevent inequality.