As more and more countries are developing their own CBDCs, a need arises for a global platform to facilitate transactions between countries.

A Global Platform

The International Monetary Fund (IMF) is developing a platform for central bank digital currencies (CBDCs) to facilitate transactions between countries, according to IMF Managing Director Kristalina Georgieva. The goal is to establish a common regulatory framework for digital currencies among central banks and enable global interoperability. Failure to reach a consensus could result in cryptocurrencies filling the void.

.@KGeorgieva participated in the High-level Policy Roundtable on Central Bank Digital Currencies in Rabat 🇲🇦.

Read her press statement on the importance of collaboration across institutions for realizing CBDC benefits & payment system interoperability: https://t.co/8L3E3LK119 pic.twitter.com/8jGqpJPwU4

— IMF (@IMFNews) June 19, 2023

Global CBDC Platform

The IMF is working on a global CBDC platform to connect countries and promote more efficient and fairer transactions. Fragmented national CBDC propositions hinder interoperability, so a unified system is necessary. Currently, 114 central banks are exploring CBDCs, with about 10 already completing their exploration. Georgieva emphasizes that utilizing CBDCs solely for domestic purposes is an underutilization of their potential.

Financial Inclusion and Cost Reduction

CBDCs have the potential to enhance financial inclusion and reduce remittance costs. Georgieva highlights that the average cost of money transfers is 6.3%, amounting to $44 billion annually. By leveraging CBDCs, these costs can be lowered, enabling more accessible and affordable cross-border transactions.

Backed by Assets

Georgieva stresses that CBDCs should be backed by assets to ensure stability. Cryptocurrencies, on the other hand, are considered speculative investments when not supported by assets. The IMF’s global CBDC platform aims to provide a regulated environment for CBDCs, where they can be supported by tangible assets.

Understanding CBDCs

CBDCs are digital currencies regulated by a country’s central bank. They differ from decentralized cryptocurrencies like Bitcoin and Ether, as CBDCs are centralized and subject to a governing authority. CBDCs operate within a regulatory framework and comply with monetary policies set by the central bank.

Promoting International Funds Transfer

The launch of a global CBDC platform has the potential to streamline cross-border transactions and reduce costs. By establishing a standardized and efficient mechanism for transferring funds between countries, transaction times and expenses can be minimized. Additionally, it can eliminate the need for multiple intermediaries involved in cross-border transactions and contribute to a more efficient exchange rate mechanism.

Implications for Nigeria

Nigeria introduced its own CBDC called eNaira to provide a digital alternative to cash. However, the country still faces challenges due to a preference for cash and a large unbanked population. The introduction of the IMF’s global CBDC may encounter resistance if people are reluctant to transition to digital transactions. Addressing financial literacy and providing access to digital payment infrastructure is crucial for successful CBDC implementation.

Coexistence with Physical Currency

The coexistence of the IMF’s CBDC with Nigeria’s physical currency could create a dual currency environment. Managing monetary policy under such circumstances would be complex for the Central Bank of Nigeria (CBN), requiring consideration of the implications on money supply, inflation, and exchange rates. Education and efforts to bridge the gap between digital and physical currency usage are necessary to prevent exclusion and promote economic equality.

Discover the critical insights from the “Situational Analysis of Women’s Financial Inclusion in Nigeria” report and understand women’s challenges in accessing financial services.

Join us at the virtual launch on Thursday, June 15, 2023, at 3:00 pm.

Be a part of this great event… pic.twitter.com/LJVlbv1TpF

— Central Bank of Nigeria (@cenbank) June 14, 2023

Conclusion

The IMF’s work on a global CBDC platform aims to establish a common regulatory framework and enable interoperability between central bank digital currencies. By promoting financial inclusion, reducing remittance costs, and streamlining international funds transfer, CBDCs have the potential to revolutionize the financial landscape. However, challenges such as adoption, education, and coexistence with physical currency must be addressed to ensure successful implementation and inclusive economic growth.