IMF warns of financial stability risks if Central Bank Digital Currencies are poorly designed

The International Monetary Fund (IMF) has sounded an alert that Central Bank Digital Currencies (CBDCs), if poorly designed, can lead to financial stability risks.

IMF Managing Director, Kristalina Georgieva, said CBDCs could also lead to data privacy and legal challenges, financial integrity and cyber risks, as well as central bank operational risks.

She said this at the “High-level Policy Roundtable on Central Bank Digital Currencies: The Role of the Public Sector in Money and Payments – A New Vision” in Morocco recently.

“Easy access to foreign CBDCs could lead to risks of currency substitution and capital flow volatility.

“These are important considerations for the IMF, as we have a mandate to help ensure that digital money, including CBDCs, fosters domestic and international economic and financial stability,” Georgieva said.

She however also mentioned that CBDCs had potential to increase inclusion by giving more people access to financial services, and at a lower cost if well managed.

Georgieva said the CBDC could also strengthen the resilience and efficiency of payment systems, while making cross-border payments and remittances cheaper and quicker.

“In addition, CBDCs could reduce the number of intermediaries in cross-border payments, foster competition and enhance transparency,” she said.

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