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You are here: Home / News / IMF Official Talks on CBDCs, their Pros and Cons at the Recent Forum
IMF Official Talks on CBDCs, their Pros and Cons at the Recent Forum

IMF Official Talks on CBDCs, their Pros and Cons at the Recent Forum

March 24, 2020 by Ketaki Dixit

Mainstream institutions have always been seen as key indicators for the adoption of cryptocurrency, as their entry would lead to massive economic growth. Since the inception of Bitcoin, there has been no other time than right now that the cryptocurrency industry has come to such a public forum.

This was evidenced again when the Deputy Managing Director of the International Monetary Fund [IMF] Tao Zhang gave a speech at the London School of Economics about Central Bank Digital Currencies. 

Zhang stated that there was never a time before when CBDCs was such a hot topic in the mainstream financial department. Since the inception of Bitcoin, it was a norm that the cryptocurrency industry would never gel with the mainstay financial institutions. Cut to 2020 and one of the highest-ranking officials of the IMF listed the pros and cons of the digital asset industry.

According to him, there were five major benefits that the cryptocurrency industry would bring to the world. These included: efficiency, financial inclusion, low barriers for entry, enhanced monetary policies and a means to counter other digital currencies. In his words:

” In some countries, the cost of managing cash can be very high on account of geography, and access to the payments system may not be available to the unbanked, rural, or poorer population. CBDCs can decrease costs and enhance efficiency.”

The IMF also understood that some banks viewed cryptocurrencies as a means to enhance the resilience of the payments system and increase competition in the sector. Although the IMF recognized the benefits of virtual assets, they were also aware of the risks associated with it.

Cryptocurrencies and the industry associated with it are known for massive criminal activities that have siphoned billions of dollars from users. A recent analysis showed that the number of scams and frauds had only increased in the field. The other issue that the banking body worried about was “run risk”. Zhang explained:

“In times of crisis, bank customers could flee from deposits to CBDC, which might be seen as safer and more liquid. However, credible deposit insurance should continue to dissuade runs. Moreover, if a run occurred, the central bank would be more easily able to respond to banks’ liquidity needs with CBDC. “

The IMF urged people to focus on the positives in the field as Zhang stated that they were doing everything in their power to combat nefarious activities. Another idea that the bank played around with was synthetic CBDCs. This would mean that the private sector would be able to issue coins backed with central bank reserves.

 

Filed Under: News Tagged With: Blockchain, Crypto Adoption

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