SINGAPORE – The head of the International Monetary Fund (IMF) has urged the world’s public sector to accelerate the development of digital money as it could make finance more accessible to people and businesses cut off from it.
Adoption of central bank digital currencies (CBDCs) may be small, but Ms. Kristalina Georgieva said on Wednesday that 60 percent of countries are currently exploring CBDCs and developing regulations to guide the sector.
But this is just the beginning, she said, adding that there is a lot of uncertainty about the specific situations in which digital currencies could potentially be used.
“This is not the time to turn back. The public sector should continue to prepare for the use of CBDCs, and the future lies in the associated payment platforms,” Ms Georgieva said in her address at the Singapore Expo on the first day of the three-day Singapore Fintech Festival conference.
She said CBDCs and payment platforms should be designed from the outset to facilitate cross-border payments.
“Efficient cross-border payments enable capital to reach where it is needed quickly. Small businesses can grow beyond borders, households can receive needed funds from abroad,” said Ms. Georgieva.
She said the IMF and World Bank would soon release a joint plan to enable countries to develop capacity to improve cross-border payments.
The IMF has also published a handbook on CBDCs on its website, Ms Geogieva said, adding that the global firm has joined Singapore’s Digital Asset Innovation Initiative as an observer.
The initiative is called Project Guardian and was launched in May 2022 to explore the use of public blockchains to enable trading of digital assets across platforms and liquidity pools.
Distributing cash is costly, particularly in developing island economies, and CBDCs could replace cash, she noted, adding that digital currencies can provide resilience in most advanced economies and improve financial inclusion where few have bank accounts .
Ms. Georgieva said artificial intelligence, which is the key theme of the 2023 festival, could amplify some of the benefits of CBDCs. For example, AI could enable fast and accurate credit scoring and provide personalized support to people with poor financial literacy so they don’t get left out.
“Of course, we must protect privacy and data security and avoid embedded biases so that we do not perpetuate inequality but aim to reduce it. If handled carefully, artificial intelligence can help,” she said.
The benefits and success of digital currencies depend on a number of factors, including developments in the payments sector, the tokenization of financial assets and the course of public-private discussions.
Policies also need to be clear, noted Ms. Georgieva, who suggested that platforms allow countries to make capital flows and maintain control over their money supply.
There must be common rules to combat money laundering and terrorist financing as well as data protection, she added.
“We do not have to decide today what is desirable, but we must define the contours so that we can support the integration and stability of the international monetary system. If we don’t do that, we may have to fragment.”
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