IMF Proposes The Concept of Synthetic CBDCs With Public-Private Partnerships

Central banks all across the globe are mulling out options of having a national digital currency. The International Monetary Fund (IMF) has also backed the idea of digital currencies and has been urging major economies to work in that direction.

In the latest development, the IMF has proposed having synthetic central bank digital currencies (CBDCs). Tommaso Mancini-Griffoli, head of the monetary capital markets division at the IMF, has called for a public-private partnerships for developing digital currencies. As per Grifolli, this could be the right option for the central banks in exploring the tech.

“There are a bunch of different stablecoins that are available. It’s hard for consumers to know which ones are fully backed and which ones really offer a claim on the underlying reserves and how liquid and safe are those reserves and are they liquid and safe enough in all states of the world,” he said.

He further added: “The question is where do you draw the line of what the public sector does and what the private sector does. The fundamental question is about issuing. Does the public sector issue and the private distribute or do we also allow the private sector to issue?”

Grifolli adds that the concept of digital currencies backed entirely by central banks or the bank’s reserves is no more a viable option. He call it a very outdated concept when compared to other hybrid models.

In the public-private partnership for CBDC, the private sector will focus on design, technology innovation, and client management. The public sector, on the other hand, can focus on regulation and trust.

While considering the original CBDC concept as the base, Grifolli thinks that synthetic CBDCs will let private sector to issue liabilities. These liabilities can then be used to purchase assets for payment.

“The banking sector is essentially funded by wholesale, and there wouldn’t be an enormous move of deposits away from banks towards a new system of payments,” he said.

Grifolli further highlighted the benefits of blockchain-based payments and said that more banks would be turning to innovative payment technologies in the future.