IMF Pushes Global Central Bank Digital Currency Platform as Cashless Trend Gains Momentum

IMF Managing Director Kristalina Georgieva speaks during a panel discussion at a summit in Glasgow, Scotland, on Nov. 3, 2021. Daniel Leal/AFP via Getty Images

The International Monetary Fund (IMF) is working on a platform that would allow various central bank digital currencies (CBDC) to interoperate on a global scale, Managing Director Kristalina Georgieva told participants at a conference.

“CBDCs should not be fragmented national propositions ... To have more efficient and fairer transactions, we need systems that connect countries—we need interoperability,” Georgieva said in Rabat, Morocco, on June 19.

“For this reason at the IMF, we are working on the concept of a global CBDC platform,” she added.

Georgieva said the IMF wants central banks to reach a consensus on a common global regulatory framework for digital currencies that would give global adoption a major boost.

The IMF believes the absence of a global platform on which various countries’ CBDCs can interoperate would make a weaker case for their use and cryptocurrencies would step in to fill the void.

CBDCs are controlled by central banks, while cryptocurrencies are generally decentralized.

“If countries develop CBDCs only for domestic deployment, we are underutilizing their capacity,” Georgieva said, adding that “the last thing we want” is the emergence of “settlement blocks” where CBDC transactions are settled within separate ring-fenced regional frameworks.

She said that out of 114 central banks around the world that are exploring issuing national CBDCs, around 10 have already crossed the finish line, and that “we will pursue relentlessly together” the development of central bank digital currencies.

A key benefit of CBDCs, Georgieva said, is that they help promote financial inclusion and make remittances cheaper.

The IMF chief’s remarks at the Morocco conference build on prior statements that make clear the U.N. agency sees the widespread adoption of CBDCs as a near given.

Georgieva told a conference on May 1 that the trend toward CBDCs is “not going to be reversed” and so the IMF had rapidly increased its staff dealing with digital money.

CBDC in the United States

CBDC adoption in the United States has slowly gained traction, with the Biden administration releasing a paper last September that examined the possibilities of introducing a technical framework that would support a U.S. digital dollar.

“If the United States pursued a CBDC, there could be many possible benefits, such as facilitating efficient and low-cost transactions, fostering greater access to the financial system, boosting economic growth, and supporting the continued centrality of the United States within the international financial system,” said the White House Office of Science and Technology Policy, detailing the technical framework possibilities for a U.S. central bank digital currency.

While the Federal Reserve hasn’t stated any definitive plans to introduce a CBDC, it’s looking into the matter and has announced the imminent launch of the FedNow service, an “instant payment” platform that some say sets the groundwork for the future adoption of a CBDC.

“FedNow appears to be a prototype CBDC,” Jordan Schachtel, publisher of “The Dossier” on Substack, stated in a tweet.

“While instant, 24/7 payments seem good, there’s implications to leaning into credit-based system. FedNow can quickly transform to a surveillance system,” he wrote.

The Fed has denied that FedNow is related to the adoption of a CBDC, insisting that it’s a payment system that allows businesses and individuals to receive instant payments.

During congressional testimony in early March, Fed Chair Jerome Powell was asked by a lawmaker whether there’s an advantage to the FedNow payment system over a CBDC or stablecoins that also tout faster payment services.

“A CBDC is going to be years in evaluation,” Powell said. “And I think we can get this into the hands of the public very quickly, and we’ll have real-time payments in this country very very soon.”

FedNow “will enable all the banks—any bank in the United States, not just the big ones—to offer instantly available funds and real-time payments to their customers,” Powell said before the House Financial Services Committee on March 8. “That’s a great thing.”

A similar private-sector payment system that offers instant settlement features such as FedNow has been around since 2017.

The U.S. government will use the current banking crisis to promote a CBDC, Democratic presidential hopeful Robert F. Kennedy Jr. has warned. The candidate says U.S. adoption of CBDCs in the United States would heighten financial surveillance and threaten basic freedoms.

“CBDCs grease the slippery slope to financial slavery and political tyranny. While cash transactions are anonymous, a #CBDC will allow the government to surveil all our private financial affairs,” Kennedy wrote in a tweet on April 5.

“The central bank will have the power to enforce dollar limits on our transactions, restricting where you can send money, where you can spend it, and when money expires.”

Some Fed officials have warned that CBDCs could pose risks to the country. During a speech on April 18, for example, Fed Governor Michelle W. Bowman stated that safeguarding privacy is a “top concern” when it comes to CBDCs.

“In thinking about the implications of CBDC and privacy, we must also consider the central role that money plays in our daily lives, and the risk that a CBDC would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested,” Bowman said at the time.

Threat to ‘Core Freedoms’

In contrast to the view of the IMF and others that central bank-controlled digital money has an upside, a recent analysis from the Cato Institute found that CBDCs pose a foundational risk to America’s economic systems while offering few benefits.

“While CBDC proponents present many potential benefits, those benefits do not stand up to scrutiny,” the think tank stated in an April analysis.

Proponents of CBDCs routinely cite the promotion of financial inclusion, faster payments, making fiscal policies easier to implement, and in the case of a U.S. central bank digital currency, it would help preserve the dollar’s status as a world reserve currency.

However, the Cato analysis says all four don’t stand up to scrutiny.

On financial inclusion, the think tank said that the push for CBDCs fails to take into account that private sector innovations are taking place and that as a solution, it doesn’t address the needs of the unbanked.

As to the faster payments argument, Cato analysts acknowledged that speeding up transactions is a “noble effort,” but that “a CBDC would fail to provide a unique, or even additional, benefit compared with the existing developments in the private sector.”

The think tank also dismissed the argument that a U.S. CBDC would help preserve the greenback’s status as the world’s reserve currency. They assert that the dollar’s attraction isn’t based on one particular financial technological platform or another but on factors such as property rights and a strong economy.

“The dollar’s renowned status is owed to the strength of the American economy and its legal protections for private citizens relative to most other countries, not the specific technology enabling electronic transfers,” the analysts wrote.

The final argument—that a CBDC would help with the implementation of monetary and fiscal policy—also falls short, according to Cato, which called the idea that a digital dollar would let policymakers fine-tune the economy both “sanguine” and “concerning.”

At the same time, while a CBDC wouldn’t offer any unique benefits compared with existing technologies, it would pose “serious risks,” the think tank warned.

This includes a “substantial” threat to financial privacy and financial freedom, as well as the foundation of the banking system itself.