The International Monetary Fund (IMF) released a new Paper on July 15th titled “The Rise of Digital Money”. For those of you who do not know who the IMF is – lets review. The International Monetary Fund (IMF), also known as the Fund, is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
We will link the full document below, but let’s review it. The Note titled “The Rise of Digitial Money” was just [published this past Monday. The paper goes over and reviews how technology firms are increasingly competing with major banks and credit card companies. The author s of the article Tobias Adrian and Tommaso Mancini Griffoli wrote:
“Digital forms of money are increasingly in the wallets of consumers as well as in the minds of policymakers. Cash and bank deposits are battling with so-called e-money, electronically stored monetary value denominated in, and pegged to, a currency like the euro or the dollar.”
This paper identifies the benefits and risks and highlights regulatory issues that are likely to emerge with a broader adoption of stablecoins. The paper also highlights the risks associated with e-money: potential creation of new monopolies; threats to weaker currencies; concerns about consumer protection and financial stability; and the risk of fostering illegal activities, among others.
The IMF goes up to talk about Five Different Means Of Payments where they talk about both cryptocurrency and central bank money.
From the article:
The most recognizable is central bank money in the form of cash—the notes and coins we have been carrying in our wallets for centuries. As discussed earlier, cash is an object-based means of payment. It is denominated in the local unit of account, is issued by the central bank, is settled in a decentralized fashion among transacting parties, and obviously has physical appearance. Its digital counterpart is currently being debated under the heading of “central bank digital currency,” or CBDC for short. Unlike cash, CBDC would likely not be anonymous, although it could protect users’ data from third parties. Its validation technology could be centralized or decentralized, and it could offer interest. Mancini Griffoli and others (2018) offers a detailed review of CBDC designs and implications. The other object-based means of payment is cryptocurrency. It is denominated in its own unit of account, is created (or “minted”) by nonbanks, and is issued on a blockchain, commonly of the permissionless type.
The IMF believes that the adoption of E-money could be rapid. The IMF goes on to say:
If a means of payment—either claim or object—has stable value in the unit of account most relevant to users, it is much more likely to be widely adopted. For one, parties will agree to hold it at least for the time it takes to complete the transaction. In addition, they will more easily agree on its value relative to the contracted transaction price, usually expressed in a common unit of account. Stable value is thus a necessary condition for an object or claim to be widely used as a means of payment. The question is how stable? And can e-money be as stable as some of its competing forms of money? If not, can its advantages as a convenient means of payment compensate and still lead to widespread adoption? Note that we focus here on e-money, but many of the insights could extend to i-money if and when it also takes off.
The IMF believes that central banks will have an important role in shaping the future of e-money, with the ability to set rules that would have a strong influence on their adoption and on how much they exert pressure on commercial banks.