A few days ago, the director of the International Monetary Fund, Christine Lagarde, said that central banks should consider issuing digital coins.
And it seems that Central Banks of the United Kingdom, Canada and Singapore have listened and started identifying Central Bank Digital Currencies (CBDCs) as one of the solutions that could be implemented to solve various problems with cross-border multi-currency payments.
These are payments that take place from one country to another with different currencies: the payer uses their own national currency, while the recipient receives another.
A joint report by the Monetary Authority of Singapore with the Bank of England and the Bank of Canada emphasised that CBDCs offer various advantages.
First of all, digital currencies would allow fast operations 24 hours a day, enabling also a good level of anonymity and eliminating the need to resort to credit as a counterparty for the risk.
According to the authors of the report, the shift from the use of current banking technologies to CBDC technologies could improve cross-border payments, for example, by overcoming problems such as lack of availability, fragmented standards or excessive intermediaries.
These payments are expected to increase by 5.5% annually: by 2022, the figure of $30 trillion traded annually could be reached, compared to $22 trillion in 2016.
In the report, central banks identified three different models of CBDCs.
The first is called W-CBDC and is specific to a single national currency. It can only be used within the country in which it is issued and would, therefore, be a currency similar to a stable coin, although directly guaranteed by the Central Bank.
The second would be a W-CBDC specific to a transnational currency that could also be exchanged outside the national borders. In this way, each Central Bank should offer support to more W-CBDC tokens and the commercial banks should keep more W-CBDC wallets with their local central bank.
The third model is the most complete: a universal W-CBDC supported by multiple currencies and exchangeable in all countries participating in the project. This model is the closest to a cryptocurrency, however, it has some disadvantages as it necessarily requires the support of a large pool of fiat currencies.
This is difficult to achieve and it would generate volatility, could be subject to value manipulation and would attract the attention of speculators. In addition, the complexity of adding new currencies to this universal third type of W-CBDC could slow down mass adoption.
Finally, it should be added that some merchants such as United Overseas Bank, HSBC, Toronto-Dominion Bank and Oversea-Chinese Banking Corporation also contributed to the report.
To date, this is just a report, but it seems to be starting to outline a path that the IMF itself seems to want to promote.
