The International Monetary Fund (IMF) released a handbook for global central banks on the development and implementation of Central Bank Digital Currencies (CBDCs). The handbook pointed out that the use of CBDCs could potentially reduce dollarization of the global economy, which would push borrowing costs higher in the US. This would make loans more expensive for businesses and individuals and would affect economic growth. The handbook was published as the IMF’s Director Kristalina Georgieva promoted the use of CBDCs during the Singapore FinTech Festival on Nov. 15. Kristalina argued that such digital currencies could bring an end to the cash-based economy.
However, there are potential risks of retail CBDCs, as it could cause funds to be pulled from traditional commercial banks and deposited as CBDCs with the central bank. This could affect the lending ability of commercial banks, and possibly worsen any banking crisis. Despite these warnings, Rep. Tom Emmer (R-Minn.) reintroduced the CBDC Anti-Surveillance State Act in an effort to prevent the U.S. government from issuing such digital currencies. The bill specifically prohibits the U.S. Federal Reserve from issuing a CBDC directly to individuals and from using any CBDC to implement its monetary policy. Similarly, Florida’s House of Representatives passed a bill banning the use of CBDCs in the state, citing concerns about centralized digital currencies leading to surveillance of spending habits and cutting off access to goods and services.
There are also concerns that a CBDC could potentially politicize the payments system and undermine the independence of the Fed. This comes as the Biden administration has asked the Fed to continue its research and experimentation on CBDCs to evaluate the potential benefits and risks. Amidst these warnings and attempts to limit the use of CBDCs, the IMF continues to push ahead with the promotion of CBDCs, urging that such digital currencies could offer a safe and low-cost alternative to cash. They argue that CBDCs could reduce dollarization of the global economy and lessen the reliance on the U.S. dollar as a reserve currency.