Kristalina Georgieva, managing director of the International Monetary Fund (IMF), is warning that the world is heading toward a widespread adoption of central bank digital currencies (CBDC) without properly considering the risk factors involved.
Wholesale CBDCs are meant to be used in interbank settlements as well as transactions between institutions and other market participants, while retail CBDCs are for use by the general population and other institutions.
A potential risk of retail CBDCs is that funds could get pulled out from traditional commercial banks and deposited as CBDCs in central banks. The depletion of deposits could affect the lending ability of commercial banks, possibly worsening the banking crisis.
Georgieva said that the IMF is working with around 50 countries on the issue of CBDCs. “And I can tell you that we would see a very significant transformation that comes from CBDCs,” she said.
The IMF has “rapidly increased” its staff dealing with digital money as the organization believes this is the direction where the global economy is headed, and that the trend is “not going to be reversed.”
The organization has conducted a survey of its members and found that more than 110 nations are at some stage of developing CBDCs.
US CBDC
Regarding the United States, Georgieva noted that the country had not shown “great interest” in CBDCs for some time. But now, “there is an engagement.”In March 2022, President Joe Biden signed an executive order that called for researching and developing a U.S. CBDC. However, there are presently no formal plans to launch an official digital currency.
Federal Reserve chairman Jerome Powell had earlier stated that the central bank will seek the approval of the government and Congress before it launches a digital currency of any sort.
In July, the Fed intends to launch its Fed Now real-time payments service, which some have suggested could be the first steps toward a CBDC. Other analysts have discounted the move as a payment mechanism.
The U.S. government will use the current banking crisis to promote a central bank digital currency (CBDC), warned Robert F. Kennedy, Jr., adding that such a move will only culminate in absolute financial surveillance and threaten basic personal liberties.
“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,” wrote Kennedy 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.
The De-dollarization Trend
Georgieva also put to rest concerns about the trend of de-dollarization. She admitted that “there has been a gradual shift away from the dollar.”“It was 70 percent of reserves. Now, it is slightly under 60 percent. The biggest competitor to the dollar is the euro. It has taken some space. Everybody else—the pound, the yen, the renminbi—they play a very modest role.”
“Why are we not worried about that? Because the reason the dollar plays its role is the strength of the U.S. economy, the depth of the capital markets here,” Georgieva said.
Though there could be different propositions for an alternative reserve currency in a world that may migrate to CBDCs “massively,” it would ultimately be the strength of the economy, depth of capital markets, and the ability to present that trust in the currency which is going to be the “leading factor” in determining the global reserve currency.
“And there, I don’t see an alternative. I don’t see it coming anytime soon. So, hold onto your dollars,” Georgieva said.
