International Monetary Fund Deputy Managing Director Tao Zhan at China’s Trade and Financial Globalization conference has spoken on the pros and cons of the central bank digital currencies (CBDC) issuance.
According to Zhan, CBDCs represent a more "efficient payment system." The new type of money can lower costs and increase efficiency. IMF executive also believes CBDCs can increase stability and lower barriers to entry for new firms in the payment system.
With the help of CBDC monetary policy will be enhanced, Zhan says.
However, despite the potential benefits, risks from CBDC may also arise. Measures should be taken to reduce risks by properly designing the CBDC.
Financial institutions may feel the need to raise deposit rates or gain access to more expensive (and intermittent) wholesale financing, which affects profitability and possibly leads to the more expensive or lower provision of loans for the real economy, Zhan says.
"Such disintermediation risks can be mitigated by using CBDC, which does not bring interest (at least in the context of positive deposit rates), and by using restrictions on CBDC assets," he said.
Zhan highlights CBDC to be "an incredibly rich area" for policy experimentation and further discussion.
Earlier the UK's central bank, Bank of England, rolled out a discussion paper in which it described an illustrative model of central bank digital currency (CBDC).
The bank says it is now time to look further ahead and consider what kind of money and payments will be needed to meet the needs "of an increasingly digital economy."
Access more than 50 of the world's financial markets directly from your EXANTE account – including NASDAQ, London Stock Exchange and Tokyo Stock Exchange.
Subscribe to our Telegram channel to stay up to date on the latest crypto and blockchain news.