Central bank digital currencies (CBDC) can replace physical money, especially in economies where cash deployment is costly, Managing Director of the International Monetary Fund Kristalina Georgieva said during a Wednesday speech.
CBDCs are digital iterations of sovereign currencies like the U.S. dollar or the euro issued by central banks, potentially utilizing technologies that underlie cryptocurrencies. Governments worldwide see these currencies as something that could support the digitization of payments, improve the efficiency of cross-border payments and help financial inclusion – by bringing financial services to unbanked or underbanked populations.
While some institutions like the European Union’s apex bank ECB have insisted that a CBDC will not replace cash, Georgieva’s comments indicate it could be a possibility – and even beneficial – for some economies.
“CBDCs can replace cash which is costly to distribute in island economies. They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts,” she said at the Singapore FinTech Festival on Wednesday.
While there is “so much uncertainty” over applications for CBDCs and adoption is very low, there is also space for innovation, and “this is not the time to turn back,” Georgieva said.
“The public sector should keep preparing to deploy CBDCs and related payment platforms in the future,” she said, adding that these platforms should be designed from the start to facilitate cross-border payments, which are currently “expensive, slow and available to few.”
While financial institutions like the Bank for International Settlements (BIS) have called on countries to set up relevant legislation to support CBDCs, major jurisdictions still haven’t made any decisions on whether to issue them.
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