#1W 肉 子 AA 3 1€ MAY 子 MA £子 W $ € INTER ATION *MONETAR AL FUND, Central Bank Digital Currency (CBDC): A Global Perspective XX Dong He Deputy Director Monetary and Capital Markets Department International Monetary Fund Seminar at the Regional Office for Asia and the Pacific April 25, 2023 The views expressed in this presentation are mine and do not necessarily reflect those of the IMF.#2Amara's Law “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run." INTERNATIONAL MONETARY FUND Roy Amara, American Futurist 2#3Rapid progress in digital technology is creating new forms of money, instruments, service providers, and networks BANK 1234 56 9967 4087 INTERNATIONAL MONETARY FUND 05 1) What's special about CBDC? 2) Emerging lessons from global developments and open questions 3) IMF approach to CBDC capacity development 3#4What's special about CBDC? INTERNATIONAL MONETARY FUND 4#5Currency, Money, Payment Instruments and Systems Economic perspective Money can be anything that can serve as a medium of exchange, unit of account, and store of value. Legal and regulatory perspectives Currency, mostly banknotes and coins, is the official means of payment of a State recognized as such by monetary law. It is always denominated in the official monetary unit. Legal tender is a key attribute: it entitles a debtor to discharge monetary obligations. Money is broader and includes certain types of assets or instruments that are readily convertible or redeemable into currency, such as book. money (credit balances on accounts) and electronic money. Payment instruments are not necessarily currency or money but are used to effect payments that are ultimately settled in currency or money. A payment system is a set of instruments, procedures, and rules for the transfer of funds between or among participants; the system includes the participants and the entity operating the arrangement. Validation Clearing Settlement Confirmation Settlement finality Money? Currency? E-money? INTERNATIONAL MONETARY FUND 5#6How do digital money and payments fit into the taxonomy? INTERNATIONAL MONETARY FUND * ** E-money Unbacked crypto-assets Stablecoins CBDC Money V X* ? V Currency X X** X V Other Payment instrument Payment instrument, Investment asset Payment instrument and payment system Payment instrument and payment system In some jurisdictions classified as money for VAT purpose (but not financial law) Except in El Salvador and Central African Republic 6#7The Duality Nature of CBDC CBDC INTERNATIONAL MONETARY FUND 7#8CBDC as an Instrument A spectrum of "cash-like" and "deposit-like" features 24 x 7 hours direct access; offline capacity Safety and integrity Integration with markets for tokenized assets Programmability: an efficient fiscal tool, and for "Internet of Things" Not just another form of e-money or payment instrument but a monetary foundation of the digital economy INTERNATIONAL MONETARY FUND 8#9Private sector Public sector Money networks eg tokenized deposits CBDC as a platform To ensure safety, efficiency, interoperability when paying, exchanging, and programming across private networks Asset networks eg tokenized bonds Financial service providers Rules, governance, recourse, oversight Basic functionality eg escrow, release, transfer... INTERNATIONAL MONETARY FUND CBDC platform Unique shared ledger Single programming language. Open access Encryption Retail and/or wholesale CBDC 6#10The evolution of cross-border payment networks Current Deposit-based Future? New networks and means of payments Ledger Country A Country B Ledger Central Bank Central Bank Domestic Payment System Domestic Payment System Ledger Ledger Bank Bank Bank Bank Nonbank Nonbank Nonbank Nonbank Payor Payee --- Route 1: Correspondent Banking Route 2: Payment System Link Ledger Ledger Ledger Ledger Ledger Choice of deposit-based and token-based systems ✓ Less reliance on correspondent banks New digital cross-border payments networks have the potential to increase efficiency by: Reducing cost of verification and cost of networking (Catalini and Gans, 2020) Shifting trust from identity to object (Kahn and Roberds, 2009), underpinned by technology Shifting trust from bilateral relationships to multilateral networks governed by common rules (Adrian, Garratt, He, Mancini-Griffoli, 2023) INTERNATIONAL MONETARY FUND 10#11The clean slate of new technologies A $ $ W-CBDC X-CBDCs: On-platform settlement • No counterparty risk For cross-border payments only. Co-exist with other systems New technologies Programmability/smart contracts Encryption Value added retail CBDC 自 INTERNATIONAL MONETARY FUND Instant payments Integrate functions Ease frictions 11#12Emerging Lessons from Global Developments and Open Questions INTERNATIONAL MONETARY FUND 12#13Front runners . The Bahamas, ECCB, Jamaica, Nigeria Brazil, China, India Bank of England, ECB, Riksbank,... "The Bank of England and HM Treasury judge it likely that a digital pound will be needed in the future. " BIS Innovation Hub projects (e.g., Jura, mBridge...) INTERNATIONAL MONETARY FUND 13#14Emerging consensus on managing policy tradeoffs and synergies Financial inclusion Financial stability Tiered wallets Privacy INTERNATIONAL MONETARY FUND Financial integrity 14#15CBDC could help privacy vs integrity tradeoff INTERNATIONAL MONETARY FUND Privacy Cash Financial integrity Bank deposits CBDC with "traceable anonymity" 15#16Smart Money vs Smart Payments The dual function of CBDC The ultimate, most widely accepted, and safest "settlement asset" An efficient and convenient "payment instrument" Programmability may enhance efficiency, increase convenience, and reduce cost of fulfilling contractual obligations... ■ ...but could affect the universality of money? INTERNATIONAL MONETARY FUND 16#17Open questions What is the optimal degree of adoption? How do we define success? ■ What are the sustainable business models to ensure low cost for both CBDC users and merchants? How can data associated with CBDC use be efficiently and safely shared to facilitate financial inclusion? How to achieve interoperability among CBDCs across the world? ■ How to incorporate financial and regulatory policies such as capital flow management measures (CFMs) in cross-border use of CBDCs? INTERNATIONAL MONETARY FUND 17#18IMF approach to CBDC capacity development INTERNATIONAL MONETARY FUND 18#19Rising Demand for IMF Assistance on CBDC (as of February 2023) INTERNATIONAL MONETARY FUND Countries exploring CBDC 100 + Bilateral CD requests YTD 48 Ongoing bilateral CD Geographical distribution Regional workshops 24 5 regions 5 regions, 500+ cumulative attendance Departments involved MCM, ITD, LEG, RES, SPR and Area Departments 19#20Challenges faced by many IMF members Lack of clarity in motivations High expectations but limited capacity and resources Unanswered analytical questions Dispersed data, knowledge, experiences INTERNATIONAL MONETARY FUND Need for a handbook 20 20#21CBDC Handbook Basis for CBDC CD engagement: Frequently asked questions Emerging lessons, views, messages from analytical work - mostly descriptive Consistency: ensure CD is consistent across jurisdictions "Living" document: new chapters at regular intervals and updates Multiyear project: about 20 chapters over 4-5 years, starting Fall 2023 Collaborative effort: Multiple IMF departments, input from member countries (including G7) & international organizations (such as BIS), vetting by IMF Board INTERNATIONAL MONETARY FUND 21#22Chapters Grouped in Five Thematic Areas Objectives and framework Digital Money: Positioning CBDC Identifying pain points and objectives Elements of thinking through CBDC Foundational requirements and readiness Legal Considerations Operational and cyber resilience Required Capacity within Central Banks Regulation and supervision • • Design process, considerations, and choices Design choices Business models and adoption Financial integrity considerations Data Use and Privacy Protection Capital Flow Management Measures Project approaches and technology Project management (5 Ps) Technology landscape and innovation Potential macro- financial impacts Impact on monetary policy transmission Impact on bank disintermediation and financial stability Cross-border payments Financial-sector market structure and contestability Promoting Financial Inclusion INTERNATIONAL MONETARY FUND 22 22#23. . . • • Takeaways CBDC has the potential to allow central banks to better meet their policy objectives in the digital age Design choices are crucial to realizing the potential of CBDC Possibilities are many and bound only by our imaginations Effective public-private partnerships need to be developed to Design and operate the CBDC infrastructure Ensure sustainable business models and optimal adoption International cooperation is key to interoperable CBDCs The configuration of networks will be in a state of flux The international community should work together to prevent digital divide and fragmentation INTERNATIONAL MONETARY FUND 23 23