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IMF Restarts Debate on Crypto as Investment Opportunity

The IMF reopened a long-raging debate by stating that Bitcoin and other cryptocurrencies are "speculative investments" if not backed by something of value.

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The International Monetary Fund (IMF) has endorsed the need for a worldwide system for exchanging and transacting with digital currencies issued by central banks, but reopened a long-raging debate.

In a High-level Policy Roundtable on Central Bank Digital Currencies in Rabat, Morocco, IMF managing director Kristalina Georgieva said, "CBDCs could reduce the number of intermediaries in cross-border payments, foster competition and enhance transparency."

But she also underlined that CBDCs should be backed by assets and that cryptocurrencies are "speculative investments" otherwise.

"In my remarks, I stressed that CBDCs could help to increase inclusion by giving more people access to financial services at a lower cost, strengthening the resilience and efficiency of payment systems, and making cross-border payments and remittances cheaper and quicker. However, if poorly designed, CBDCs could also lead to financial stability risks, data privacy and legal challenges, financial integrity and cyber risks, and central bank operational risks," said Georgieva.

"In addition, CBDCs could reduce the number of intermediaries in cross-border payments, foster competition and enhance transparency. However, easy access to foreign CBDCs could lead to risks of currency substitution and capital flow volatility," she added.

The IMF wants central banks to agree on a digital currency regulatory framework for worldwide interoperability. Georgieva predicted that cryptocurrencies would fill a platform gap if no agreement were reached.

Investment Risk?

Cryptocurrencies are usually decentralised. However, CBDCs are central bank-controlled, and digital currencies without asset backing are debated and speculated.

The US dollar and the euro are backed by governments, ensuring their value and stability. Bitcoin and Ethereum are decentralised and may lack real assets or government assurances. Cryptos without asset backing are touted for their benefits. Decentralised digital assets provide financial independence, privacy, and security.

Analysts think blockchain technology can enable efficient, transparent transactions without intermediaries. Some proponents also claim that bitcoins' scarcity increases their worth, while opponents say that cryptos are speculative without asset backing.

These digital currencies are volatile and subject to price manipulation because they lack actual assets and government support. Critics also point to the absence of cryptocurrency regulation, which may lead to fraud, scams, and market manipulation.

Cryptocurrencies without asset backing debates revolve around value. Some believe that digital assets might revolutionise the financial world and become universally recognised means of payment, while others consider them speculative tools.

As technology and regulations change, perspectives on this issue may change.

IMF Bets on CBDCs as the Future

Georgieva, though, added that CBDCs might increase financial inclusion and lower remittance costs, which average 6.3% and cost US$44 billion annually.

"These are important considerations for the IMF, as we have a mandate to help ensure that digital money, including CBDCs, fosters domestic and international economic and financial stability," said the IMF Managing Director.

As cash transactions decline and crypto assets gain popularity, central banks are investigating how they may issue digital currencies.

Ten of the fourteen central banks looking at issuing a national digital tender are "already crossing the finish line," she added. However, there is "a lot that is still not decided" about the regulation and organisation of CBDCs.

Georgieva pledged, "We will pursue relentlessly together" the advancement of CBDCs.

Tobias Adrian, financial counsellor and director of the Monetary and Capital Markets department at the IMF said, "In today's digital age, technology presents an opportunity for money to evolve. Cryptography, tokenisation, and programmability are explored around the world as a basis to improve money. From banks to central banks, the aim is to offer money that can sit alongside our messaging apps, work efficiently, and be even safer."

"Today, I would like to explore some of the infrastructure behind money and present a blueprint for improvements—a new class of cross-border and domestic payments and contracting platforms," added Adrian.

Broadly, the IMF's reading shows that limited infrastructure makes cross-border payments expensive, slow, and opaque. The risky settlement and sporadic governance increase legal and operational costs.

Global finance requires worldwide payments, and remittance providers get US$45 billion, which may benefit the impoverished states.

Adrian said that the G20's Roadmap involves improving cross-border payments globally. He added that the IMF, World Bank, BIS, and FSB are cooperating more than ever, each providing its comparative advantage.

That IMF report comes on the heels of news that after a year-long study, the Bank of England has found that digital currency technology may allow a "diverse range" of new ways to utilise money, bringing them one step closer to establishing their digital currency.

UK Taking Baby Steps to Launching “Britcoin”, But Still Years Away
At Politico’s Global Tech Day event, BoE deputy governor Cunliffe once again stated that the United Kingdom was “likely” to need a CBDC, giving the project chances of “seven out of 10.”

Last year, the UK institution and the Bank for International Settlements started Project Rosalind to examine CBDC viability and benefits.

On Friday, the BIS released phase one of the experiment's report, stating that a CBDC might improve individual payments, stimulate novel financial products, and reduce fraud.


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