IMF head: CBDCs will win out over cryptocurrencies
Kristalina Georgieva admits ‘privacy concerns’ are potential deal breaker to CBDC adoption
Kristalina Georgieva, the managing director of the International Monetary Fund, has argued that central bank digital currencies (CBDCs) will eventually win out in a battle with cryptocurrencies.
'Early days' for CBDCs
Speaking at the Atlantic Council in Washington DC last week, Georgieva said: “These are still early days for CBDCs and we don’t quite know how far and how fast they will go.”
CBDCs are digital versions of national currencies developed, distributed and managed by central banks. Research and development in the field has accelerated significantly in the past three years, spurred on in part by the growth of the cryptocurrency sector.
CBDCs allow governments to integrate some of the innovations first pioneered by the likes of Bitcoin, such as blockchain technology, increased security and traceability. At the same time, they eschew the decentralising sentiment that is central to many leading cryptocurrencies.
Georgieva, who previously served as chief executive of the World Bank and vice-president of the European Commission, stressed that stability is key to future CBDC success.
In her speech, the Bulgarian stated: “If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability and lower costs than private forms of digital money.”
She added: “That is clearly the case when compared to unbacked crypto assets that are inherently volatile. And even the better managed and regulated stablecoins may not be quite a match against a stable and well‑designed central bank digital currency.”
Last month, the IMF’s board urged El Salvador to stop recognising Bitcoin as legal tender, describing the cryptocurrency as a risk to “financial stability, financial integrity, and consumer protection.”
Three key factors
Arguing that “the history of money is entering a new chapter”, she highlighted three key factors that will affect the development and introduction of CBDCs:
- Firstly, “the balance between developments on the design front and on the policy front.”
- Secondly, the unique character of every economy meaning that “central banks should tailor plans to their specific circumstances and needs.”
- Thirdly, “financial stability and privacy considerations.”
Describing this last factor as of “paramount” importance, Georgieva admitted: “Privacy concerns are a potential dealbreaker when it comes to CBDC legislation and adoption. So, it’s vital that policy makers get the mix right.”
Critics of CBDCs have repeatedly highlighted the level of insight into, and oversight of, the spending habits of individual citizens that CBDCs provide to governments as a potential cause for concern.
The comments of some of the world’s leading central bankers have done little to reduce such anxiety.
Agustin Carstens, the general manager of the Bank for International Settlements, once emphasised what he saw as a “huge difference in equivalence” between cash and CBDCs.
The head of the central bank to the world’s central banks, stated:
“With cash, we don’t know who is using a $100 bill today, we don’t know who is using a 1,000 peso bill today. A key difference with the CBDC is that the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and we will have the technology to enforce that.”