The pros and cons of central bank digital currencies

About 80 to 100 central banks around the world, including G20 nations, are exploring central bank digital currency (CBDCs) and are in some sort of pilot or testing stages of it, according to a top International Monetary Fund (IMF) official.

Addressing the three-day Global FinTech Fest last week, IMF financial counsellor and director of its Monetary and Capital Markets Department, Tobias Adrian, said: "CBDCs are designed to be very stable - stable in value, with low transaction costs and backed by the central bank for added consumer confidence. They are very different from bitcoins which fluctuate in value and are more like an investment asset.”

He told the Fest, which was attended by over 26,000 delegates from 121 countries, that central banks around the world were keen to embrace technological progress and believed many innovations could flow from issued digital currencies, especially across payments and lending platforms.

“CBDCs could indeed be somewhat similar to bitcoin assets. They could be based on blockchain technology and could be available in wallets. It depends on the design whether it is based on existing payment systems or using very powerful blockchain technologies," he said.

Meanwhile, Adrian warned that cybersecurity could be a major challenge for CBDCs. But he said the risks were not created by technology alone, but also by the intersection between technology and humans.

CBDCs, he said, might undermine existing banks so banks needed to upgrade their technologies to compete. Plus, not everyone had mobile phones for transacting CBDCs.

Adrian said many discussions were going on between central banks of various countries to make cross-border payments cheaper.

The Global FinTech Fest was organised by National Payments Council of India (NPCI) and Fintech Convergence Councill (FCC) and Payments Council of India (PCI) of Internet and Mobile Association of India (IAMAI).

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