WASHINGTON: Central bank digital currencies can co-exist with privately issued cryptocurrencies as the dual monetary system evolves, according to the International Monetary Fund.
Today’s dual monetary system involves privately issued money – by banks, telecom companies or specialist payment providers – built on a foundation of publicly issued money by central banks, the IMF said in a blog post, report agencies.“This system offers advantages, including innovation and product diversity, mostly provided by the private sector, and stability and efficiency, ensured by the public sector,” Tobias Adrian, the IMF’s financial counsellor and director of its monetary and capital markets department, and deputy division chief Tommaso Mancini-Griffoli, said in the co-authored post.
The world’s largest central banks – and even some of the smaller ones – are toying with the idea of issuing digital currencies, or the electronic equivalent of cash.
Unlike privately issued cryptocurrencies such as Bitcoin and Ethereum, central bank digital currencies do not work on the concept of mining. The People’s Bank of China aims to become the world’s first central bank to issue a digital currency as part of its push to internationalise the yuan and reduce its dependence on the global dollar payment system. In Sweden, already the world’s least cash dependent economy, the Riksbank has also begun testing the e-krona.
The European Central Bank and Bank of England have both launched consultations on digital currencies, while the Bank of Japan and the US Federal Reserve have so far taken a back seat.
Meanwhile, central banks should not face a choice between either offering their own digital currencies or encouraging the private sector to provide a digital variant. The two can complement each other, the IMF blog’s co-authors said. The option of redemption into a central bank currency, be it notes, coins or central bank reserves held by selected banks, is essential for stability, interoperability, innovation and diversity of privately issued money, according to the Washington-based lender.