IMF releases guidance on digital currency for world's central banks
The IMF’s “Central Bank Digital Currency Virtual Handbook” published last week, pointed out that the increased use of CBDCs can “reduce dollarization” of the global economy—a situation where countries move away from relying on the U.S. dollar as a reserve currency, Azernews reports.
De-dollarization would push up borrowing costs in the United States, making loans expensive for businesses and individuals, thus affecting economic growth. Stock market values can also crash, reducing the savings and investments of Americans.
In addition to de-dollarization, a CBDC “could increase the risks of flight to safety from retail bank deposits in periods of market stress.” During times of market volatility, customers withdraw their deposits and move them into safe assets to avoid losing money in scenarios like bank collapses.
If CBDCs were available, pulling out funds from a bank and putting them in such assets would come across as a safe option for many people, thus triggering a bank run.
The organization pointed out that CBDCs could offer “a safe store of value and efficient means of payment, which can increase competition for deposit funding, raise banks’ share of wholesale funding, and lower bank profits.”
The IMF handbook was published as the organization’s director, Kristalina Georgieva, promoted the use of CBDCs during the Singapore FinTech Festival on Nov. 15, arguing that such digital currencies could bring an end to the cash-based economy.
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