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A report commissioned by IBM and the central banking think tank the Official Monetary and Financial Institutions Forum (OMFIF), claims scores of officials from central banks around the world are considering launching their own consumer-ready central bank digital currency (CBDC).
The report is based on findings of a research group which followed up with 23 central banks around the world during the time period of July-September 2019. The survey said that not only are these central banks considering developing and launching CBDC but that the first CBDC is likely to be launched within the next five years.
However, the report implied that the first CBDC will not be launched by a major economy. The report mentioned that a “small economy” will most likely launch the first CBDC with a well-defined use case that is aligned with a special policy objective.
The report also predicts that consumer-ready CBDC will need some form of public-private partnership because central banks themselves cannot offer financial services to operationalize the CBDC for the consumers. In this regard, the services of private partners will be needed to complete a robust infrastructure to make the CBDC a viable currency option that can be reliably exchanged.
The report also highlights some other fascinating key findings. It states that policy objectives were still regarded as the guiding principles with regards to CBDC for many central bankers. This means that any advancements in technology would not pre-eminently inform the final decision to launch a digital currency backed by the government and the central bank.
Interestingly, the report also mentions that more than half of the respondents were concerned by private digital currencies like Libra that could seriously hamper the sovereignty of monetary policies issued by the state.
Central Bank Digital Currency vs. Traditional Cryptocurrency
A central bank digital currency is different from traditional digital currencies that are not issued by the state and lack the legal tender status declared by the government. Naturally, these are public digital currencies that are backed by valued financial assets and are under the economic jurisdiction of the state and the central bank of that nation.
The prospect of CBDC has been an interesting topic for debate for many economists and policy makers. The idea of CBDC was first discussed by the Bank of England but countries like Sweden are closer to its implementation.
The report by IBM and OMFIF will probably advance the debate of CBDC and might especially encourage smaller nations to issue their first CBDC to meet their policy objectives.