Currently, several countries are moving through their respective central banks towards creating central bank digital currencies, which is known as CBDC for its acronym in English. According to the International Monetary Fund (IMF), around 80% of central banks worldwide do not have laws that allow these currencies’ issuance. There is no “clear” legal framework in this regard.

IMF data

According to the International Monetary Fund, which reviewed the laws of the central banks of its 174 member countries, only 40 of these banks (23%) have the authorization to issue CBDCs, it also found that 104 central banks (61%) only have authorization to issue physical bills and coins. Likewise, the IMF points out in its report on the CBDC that the remaining banks (16%) have laws that are not clear regarding the issuance of digital currencies.

These data indicate that 80% of banks will not legally issue these central bank digital currencies without having approved a new legal regulation. The IMF maintains that in the case of the CBDCs raised in some countries, the issuance is not a purely technical detail, since all issuance of money means the acquisition of debt for the central bank, so this process must have a solid foundation to avoid possible legal, financial and reputational risks for the institutions.

It is important to note that to qualify a currency as legal tender, it must be considered by the country’s laws and be called a “national monetary unit,” which means that debtors can cover their obligations by transferring these currencies to their creditors. In addition to the above, there is another requirement to use digital currency; according to the IMF, there must be a digital infrastructure, which is comprised of computers, smartphones, and Internet connectivity, due to this, many governments could not impose the CBDC to its citizens without first meeting these requirements.

The approaches

There are two approaches to a central bank’s digital currency; according to the IMF, some digital currencies are account-based, while others are token-based. Those digital currencies based on accounts would require digitizing the account balances in the central bank’s books. In contrast, digital currencies based on Tokens refer to the denomination of a new digital Token, which is not related to the accounts that the different banks own in their respective central bank.

Are digital currencies considered money?

Through its Twitter account, the IMF launched a survey as a proposition, asking, Are digital currencies really money ? and 79% of the respondents answered affirmatively, which could indicate a high degree of familiarity with the digital currencies, or at least, they know of their existence.

Doubts persist about the effects that the creation of digital currencies by a central bank would have, for example, many question the impact that CBDCs would have on the financial system, especially concerning maintaining the anonymity of cash, or whether for the, on the contrary, the creation of these digital currencies would bring a greater monetary vigilance on the particular people.

What do you think about this topic? Do you think central banks should issue digital currencies?

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