NOVEMBER 14, 2023
The paper briefs the Executive Board on the initial considerations on CBDC. These cover a framework to guide countries’ CBDC exploration, as well as implications for monetary policy transmission, capital flow management measures, and financial inclusion.
EXECUTIVE SUMMARY
- The landscape of CBDC exploration is diverse – some central banks are proceeding rapidly while others are moving more slowly or adopting a wait-and-see approach.
- If designed, implemented, and regulated appropriately, CBDC has the potential to modernize payment systems and support demand for central bank money even if alternative digital means of payment are rapidly adopted.
- However, the decision to explore and potentially even launch CBDC should remain jurisdiction specific, depending on policy objectives and domestic circumstances such as the degree of digitalization, the structure of the financial system, legal and regulatory frameworks, and the central bank’s own capacity.
- A dynamic decision-making framework can help guide central banks in their CBDC exploration. At least six elements should be considered in such a framework, including policy objectives, design choices, capacity assessment, stakeholder engagement, macro-financial risks and implications, and legal and regulatory issues.
- To build trust in CBDC, robust institutional, legal, and technological safeguards should be adopted to protect user privacy while ensuring compliance with antimoney laundering and counter-terrorism financing (AML/CFT) standards.
- CBDC development also needs structure and flexibility. A phased and iterative approach over five steps, including preparation, proof-of-concept, protype, pilot, and production, could allow central banks to adjust the pace, scale, and scope of their CBDC projects.
- The impact of CBDC on monetary policy transmission and financial stability will depend on design features and characteristics of the economy. Transmission could strengthen, though probably not by much.
- CBDC could facilitate cross-border payments and provide an alternative channel for capital flows. Capital flow management measures (CFMs) can be built into CBDC, allowing for automation and greater efficiency, though raising some operational risks.
- If designed to mimic the ease of use and trustworthiness of cash, and accompanied by policies facilitating adoption, CBDC could help promote financial inclusion.
These messages are drawn from a wave of five IMF Fintech Notes on CBDC published in September 2023. The messages thus do not offer a comprehensive view on CBDC. The Fintech Notes will be edited into the initial chapters of a CBDC
Handbook after incorporating comments by the international community, including on this paper.
The planned virtual CBDC Handbook will address the most frequently asked questions related to CBDC and serve as a basis for capacity development (CD). The questions are bundled into five priority areas:
(i) policy objectives and operational framework of CBDC;
(ii) foundational requirements and readiness to issue CBDC, such as legal considerations, cyber resilience, central bank governance, and regulation and supervision;
(iii) CBDC design processes, considerations, and choices;
(iv) project approaches and technology; and
(v) potential macro-financial impacts of CBDC.
CBDC Fintech Notes and Handbook chapters are prepared in close collaboration with member countries and other international organizations.
Staff follows a three-step approach:
(i) develop Fintech Notes on CBDC topics to seek comments inside and outside the IMF;
(ii) brief the IMF Executive Board on key themes extracted from the Fintech Notes (as done in this paper); and
(iii) subsequently publish Handbook chapters, in this case after the 2023 Annual Meetings.