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CBDCs can replace cash - IMF director Kristalina Georgieva

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(Kitco News) - Proponents of the use of cash have been validated in their concerns around central bank digital currencies (CBDCs) as Kristalina Gerogieva, managing director of the International Monetary Fund (IMF), recently said that CBDCs have the potential to replace cash.

“CBDCs can replace cash which is costly to distribute in island economies,” she said Wednesday at the Singapore FinTech Festival. “They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts.”

Gerogieva noted that 60 percent of countries are exploring them in some form today, and said, “The public sector should keep preparing to deploy CBDCs and related payment platforms in the future,” and recommended that “these platforms should be designed from the start to facilitate cross-border payments, including with CBDCs.”

In making the case for the general public to use a CBDC, Gerogieva said they offer a safe and low-cost alternative to privately issued digital tokens, and “They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks.”

While CBDCs are issued by governments and central banks, she acknowledged that their success “will rely on policy decisions and how the private sector responds.”

“Country authorities wishing to introduce CBDCs may need to think a little more like entrepreneurs,” she said. “Communication strategies, and incentives for distribution, integration, and adoption, are as important as design considerations.”

In order to be successful, a CBDC would need to be accepted by merchants, integrated into financial services and messaging apps, and keep pace with technological developments, she said, and that requires assistance from fintec leaders and developers in the private sector.

She also said that advancements in the tokenization of financial assets, such as bonds issued on blockchains, “opens another door to CBDC, potentially in wholesale form, to pay for those assets.”

Gerogieva sees cross-border payments as one of the primary uses for CBDCs.

“Efficient cross-border payments allow for capital to get more quickly to where it is needed,” she said. “Small businesses can grow beyond borders, and households can receive needed funds from abroad. While we see encouraging declines in the cost of remittances, they remain above Sustainable Development Goal targets. We must ensure that countries do not get stuck on the wrong side of the digital divide.”

She called for the creation of new cross-border platforms that can function as “next-generation virtual town-squares where central banks, commercial banks, and potentially even households and firms, can gather to exchange CBDCs in wholesale or retail form.”

“Such platforms can even be built to interface with traditional forms of money and manage risks from payments,” she said. “These platforms are being actively explored by a range of players. Banks and fintech companies are at the forefront. They are building infrastructure to pay each other, and to exchange financial assets on common blockchain networks.”

To help encourage the exploration of CBDCs, the IMF released a CBDC Handbook, which is “intended to collect and share knowledge on CBDCs for policymakers around the world,” she said.

Gerogieva concluded by saying that while there is still a lot of work to be done in regard to CBDCs, “the potential payoff is clear – a more inclusive international financial system that meets our future needs.”

BIS Chief says CBDCs will sit at the core of the future financial system

Singapore to launch wholesale CBDC pilot

The Monetary Authority of Singapore (MAS) announced on Thursday that it plans to issue a ‘live’ central bank digital currency (CBDC) for wholesale settlement, and also promoted the release of tokenized bank liabilities and regulated stablecoins.

“To complement the digital money trials by the financial industry involving retail and corporate users, MAS will commence the development of CBDC for wholesale interbank settlement next year,” the announcement said. “MAS will pilot the ‘live’ issuance of wholesale CBDCs for the first time, after previously simulating issuance within test environments.”

The first wCBDC pilot will explore the settlement of retail payments between commercial banks, and future experiments could include the use of a wCBDC for cross-border settlements, MAS said.

“The ‘live’ issuance of central bank digital money for use as a common settlement asset in payments is a significant milestone in MAS’ digital money journey that began in 2016,” said Ravi Menon, managing director at MAS. “The issuance of wholesale CBDC reinforces the role that central bank money plays in facilitating safe and efficient payments.”

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