IMF: How regulators can ensure co-existence of private stablecoins, CBDCs
CBDCs are all the rage of late. While cryptocurrencies continue to be seen with skepticism by most regulators, the idea of a CBDC has grabbed a lot of eyeballs. In doing so, it has also stoked a lot of conversation around it.
During a recent event, the International Monetary Fund (IMF) spearheaded a discussion on CBDCs and private stablecoins.
Economics and Policy Professor Eswar Prasad explained that while financial innovation is nothing new, it changes the fundamental nature of money. In this context, he called for a bifurcation of private crypto-payment platforms and centralized cryptocurrencies. He said,
“I think we will have private currencies potentially playing a more important role, but I think other forms of currencies especially central bank-issued digital currencies are likely to retain the roles and stores of value.”
The role of private players is essential in providing low-cost and more efficient digital payment systems, he further added. In this setting, Ripple’s latest partnership with Digital Pound Foundation [DPF] can be a good example. The collaboration is working to innovate the U.K’s CBDC and digital payments infrastructure.
However, the implementation of such private-public partnerships is likely to be uneven. According to Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), it is a good thing that the “configuration of reserve currencies is changing.” In the context of Kenya, she added,
“M-PESA making a huge difference in Kenya…”
However, she also cautioned that the global community needs to steer clear of “fragmentation” and “lack of regulations” in the monetary system.
Contrarily, Prasad cited the example of China – A country that has a low-cost digital payments method. However, there are issues of domination and data control with private players kept out of the ecosystem.
Benoît Cœuré, Head of the BIS Innovation Hub, also reminded that central banks have a mandate to maintain financial stability in a digital world. Having said that, he argued that CBDCs are essential to support competition.
“The market might come to be dominated by very big tech players with a lot of market power, with a lot of ability to control data.”
Opportunity & risk
It’s here that Prasad raised an important question – Who is going to be responsible for creating credit in modern economies? What will be that efficient method?
Georgieva answered that it will allow the collaboration of CBDCs and privately-issued stablecoins or e-money. In this context, she added that countries with weak institutions can benefit.
“For small countries that may be a fantastic opportunity to become stronger and more resilient.”
Therefore, regulators cannot afford to kill private players. Cœuré added,
“[Central Banks] They have to be forward-leaning and they have to embrace innovation but they also have to be prudent, or equal, they don’t want to kill.”
Central banks “trying to control private money” is a risk, he concluded.
Global access is another crucial factor that Prasad pointed out. According to him, an easily available digital version of the dollar, or renminbi, or even Facebook-backed stablecoins is going to be much more trusted than domestic currencies that are not credible. He warned,
“Government’s going to have to play an active role, but one that is not too intrusive.”