The International Monetary Fund (IMF) said on Thursday that Central Bank Digital Currencies (CBDC) is one of the significant issues deserving consideration by policy makers.
Digital currency is a type of currency available in digital form. It can be used to purchase goods and services but can also be restricted to certain online communities.
This is coming as the Fund said less than one-quarter of central banks around the world are actively exploring the possibility of issuing CBDC and that so far, only four pilot projects have been reported.
Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department, IMF, stated this in his remarks titled, ‘Paving the Way for Fintech’, on Thursday in Belize City, Belize.
“Despite the challenge of achieving the right balance, every country — including the countries of the Caribbean — would be wise to prepare for and embrace the fintech revolution, in the hope of realizing its far-reaching social and economic benefits”, Adrian said.
“It seems clear that the case for CBDC adoption depends on country-specific circumstances. There doesn’t seem to be a “one size fits all” policy prescription.”
The Central Bank of Nigeria (CBN) on February 28, 2018 warned members of the public that virtual currencies are not legal tender in Nigeria
“We wish to caution all and sundry on the risks inherent in such activities”, Isaac Okorafor, director, corporate communications said.
Further to the circular issued by the Central Bank of Nigeria (CBN) on January 12, 2017, to Banks and other financial institutions on virtual currency operations in Nigeria, the Bank reiterated that cryptocurrencies such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc and Exchanges such as NairaEx are not licensed or regulated by the CBN.
There are surely some positive aspects of adopting CBDC, said IMF. The Fund said it could reduce the costs associated with the use of cash, and it may improve financial inclusion in cases where there have been unsuccessful private-sector initiatives and unsuccessful policy efforts.
It could also help central banks strengthen the security of, and trust in, the payment system — and it could protect consumers where regulation does not adequately limit private monopolies. Moreover, issuing CBDC could also facilitate the “contestability” of the payments market, and could reduce the risk of having a few large providers dominating the system.
However, the Fund said central banks must also carefully evaluate the potential downsides to issuing CBDC. These could include: Concerns about integrity risks, if the CBDC is issued as an anonymous instrument that could be used for illicit activities.
Almost all central banks that are researching the issuance of CBDC seem to favour a hybrid approach that allows central banks — and only central banks — to trace transactions; The potential impact on financial intermediation. Depending on the design of the CBDC, it is conceivable that bank deposits could migrate to CBDC, thus fundamentally changing the nature of financial intermediation; and the impact on monetary policy conduct and transmission channels, among others.
HOPE MOSES-ASHIKE
