IMF CBDC Virtual Handbook

The latest International Monetary Fund (IMF) has published a blog which highlights its Central Bank Digital Currency (CBDC) Virtual Handbook. It draws attention to the explosion of interest in CBDCs and the need to design them appropriately.

It makes the point that the benefits of a CBDC are more likely to come in time. Policies will need to develop, the private sector will require time to respond, and technology will evolve. Much of the work on CBDCs is, of course, ‘just in case’.

It highlights not just those who have introduced CBDCs – the Bahamas, Jamaica and Nigeria – but also Brazil, China, the euro area, India and the UK who are leading exploration.

Currently the IMF’s CBDC Virtual handbook consists of five sections,

• How Should Central Banks Explore Central Bank Digital Currency? This offers dynamic decision-making process in which central banks can proceed despite uncertainty, and adjust the pace, scale, and scope of their initiatives in response to changes in domestic and international conditions.

• A Guide to Central Bank Digital Currency Product Development. This suggests a step-by-step guide to address the complex requirements and risks associated with CBDCs – preparation, proof-of-concept, prototypes, pilots, and production.

• Implications of Central Bank Digital Currencies for Monetary Policy Transmission. While policy transmission is not expected to be affected much under normal circumstances, the effects can be more significant in an environment with low interest rates or financial market stress.

• Implementing capital flow management measures with CBDC. This shows how CBDCs could facilitate cross- border payments while still managing capital flows, including exploring whether programmable payment infrastructure could implement some of the capitalflow management measures more efficiently and effectively compared to the traditional approach.

• Central Bank Digital Currency’s Role in Promoting Financial Inclusion. If CBDCs work as a risk-free digital money and achieve wide acceptance, and if they can be delivered with lower costs and made more accessible that existing payment options, then CBDCs can increase financial inclusion. If they can replicate some of the properties of cash, CBDCs could gain acceptance as a payment mechanism for financially excluded populations—and be an entry point to the broader formal financial system.

The IMF continues to assess the potential effects of CBDCs on areas from financial stability to cybersecurity and cross-border payments. The Handbook is intended to be a living document that will be updated and expanded as knowledge and analysis grows, and as new lessons and insights emerge. The existing five chapters will be updated, and new publications are planned for next year.