IMF Braces to Monitor Rise of Digital Money Including CBDCs Like e-CNY
As the rise of digital money continues globally, including growing interest in central bank digital currency (CBDCs) like China’s digital yuan, the International Monetary Fund (IMF) has said it has to brace itself to be able to “monitor, advise on, and help manage this far-reaching and complex transition.”
Digital money comprises publicly issued money that covers CBDC and privately issued money like eMoney, mobile money, stablecoins, tokenized bank deposits, tokenized financial assets that can be seamlessly traded on liquid markets.
The IMF sees digital money rise as having “profound, wide-ranging, and interconnected implications for domestic economic and financial stability and the stability of the IMS” (or the international monetary system).
It wants to seek the monitoring role to ensure that widespread adoption of digital money fosters domestic economic and the stability of the IMS hence its need “to rapidly increase resources and deepen its skills to be effective” to fulfil its mandate to help support and better serve its membership.
With more than 80% of central banks studying CBDCs as at the end of 2020, there have been calls for the international community to achieve consensus on standards and rules for using CBDCs. The issuance of these government-backed digital currencies has been seen in different lights.
China is considered a leading force with regards to issuing a CBDC. Yet, several issues are still at play as to the functionalities of its proposed e-CNY which has been touted to be about gaining geopolitical dominance and the start of a competition between powers.
Despite the People’s Bank of China making a clarification recently, some experts believe the launch of the e-CNY will surely help promote yuan’s internationalization particularly as it is on the verge of becoming the world’s third-largest currency in terms of pricing, settlement and international reserves.
Tu Yonghong, deputy director of the International Monetary Institute (IMI) at the Renmin University of China and the former deputy director of the State Administration of Foreign Exchange, Wei Benhua, see the e-CNY’s use for cross-border payments and likely having an impact on the IMS and the yuan’s internationalization.
An IMI research showed that the internationalization level of the Chinese currency rose by the end of June as the yuan’s international usage surpassed that of the Japanese yen and the British pound sterling to only be behind the US dollar and the euro for three consecutive quarters.
On another hand, China’s development of better payments systems and the e-CNY is seen as presenting a challenge to the west on crypto, the president of Queens’ College in Cambridge and Chief Economic Advisor at Allianz has opined.
Mohamed El-Erian wrote that at this time when western governments are having a narrow policy debate over crypto, Beijing seems to have understood the transformational power of the crypto revolution and has learnt to co-opt it in a holistic and highly directed manner.
These differing views indicate that several factors make progress levels across countries still inconsistent. The factors include design choices, evaluation approaches, relevant legal and regulatory frameworks, policy conduct, and institutional designs etc which are difficult to forecast.
“The Fund has a critical role to play to help its members harness the benefits and manage the risks of digital money,” the paper said, as digital money “must be regulated, designed, and provided so countries maintain control over monetary policy, financial conditions, capital account openness, and foreign exchange regimes”.