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IMF Director Georgieva: CBDCs are coming, will “completely transform the financial system”

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(Kitco News) - The Managing Director of the International Monetary Fund, Kristalina Georgieva, believes it’s only a matter of time before central bank digital currencies (CBDC) are rolled out around the world and in the United States.

“The future has arrived,” Georgieva said. “Even in the U.S. where [CBDC] was for quite some time a topic of not great interest, now there is an engagement.”

Georgieva spoke at the Milken Institute’s 2023 Global Conference on May 1, where she addressed the opportunities and risks the IMF sees for CBDCs and urged financial leaders to think about the unthinkable.

“What we have lived through in the last years has been a series of unthinkable events, the pandemic, the war in Ukraine, the rapid jump of interest rates after many, many years of staying low,” she said. “It is upon all of us to anticipate shocks and be ready to act when they occur, because they will be coming.”

Among the events the IMF believes could have a destabilizing effect are CBDCs, depending on the type a country chooses to adopt.

“When we think about CBDCs […] what we are careful about, is the choice between wholesale and retail CBDCs,” she said. “We think that wholesale CBDCs can be put in place with fairly little space for undesirable surprises, whereas retail CBDCs, they completely transform the financial system in a way that we don't quite know what consequences it could bring.”

Retail CBDCs are digital currencies issued by central banks directly to citizens for everyday commercial and financial transactions, and are designed to replace the country’s conventional money supply in circulation.

Wholesale CBDCs would be limited to deposits and transactions between the central bank and commercial banks, as well as large-scale financial activities such as international trade and intra-bank settlements, but would not be used by the broader public.

Georgieva said regardless of the form they take, there is no doubt in her mind that CBDCs are the future, and the IMF has “rapidly increased” the number of staff that works on CBDCs and other forms of digital money as a result.

“We know that this is where we are headed,” she said. “It is not going to be reversed. Before the pandemic, we used to say the future is digital, and with the pandemic, the future has arrived.”

The IMF director pointed out that the organization surveys their membership on this topic, and that over 110 countries “are at some stage of developing CBDCs.” She added that the impact of central bank digital currencies on individual countries and the global economy will be profound.
“I can tell you that we would see a very significant transformation that comes from CBDCs,” she said.

The IMF published a policy paper on April 11 which outlines “a multi-year strategy to address frequently asked questions related to CBDC and outlines the process for developing a CBDC Handbook which will document emerging lessons, analytical findings, and policy views.” They wrote that over 40 countries have approached them asking for assistance on CBDC capacity development.

The IMF also trimmed their 2023 global growth outlook and updated its medium-term expectations to the weakest in three decades in its latest World Economic Outlook (WEO) report published April 11, and also warned of a “hard landing” for the global economy if interest rates remain higher for longer.

The IMF sees global gross domestic product rising 2.8% this year and 3% next year - 0.1 percentage points less than the January forecast. In comparison, global growth expanded at 3.4% in 2022.

"The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geoeconomic fragmentation," they wrote, adding that global growth looks to be 3% in 2028 - the lowest medium-term outlook since the WEO was first published in 1990.

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