The monetary system of the future will be a collaborative effort between cryptocurrency technology that has largely been demonstrated and central banks, according to the International Monetary Fund (IMF).
A new report published to the IMF website outlines an argument that the monetary system of the future should include the technical capabilities demonstrated by cryptocurrency, but be grounded in the trust of central banks. The report was written by executives from the Bank for International Settlements (BIS) and stated that any legitimate transaction that is carried out in a cryptocurrency is better with central bank money, specifically Central bank digital currencies (CBDCs).
The IMF report points out many flaws of the cryptocurrency industry, writing that its "neither stable nor efficient", hardly regulated, and all of its participants aren't "accountable to society". Adding that the crypto industry is plagued with frequent fraud, theft, scams, and it propagates concerns regarding market integrity. Despite its shortcomings, the cryptocurrency industry has demonstrated incredible technology that the IMF recognizes is necessary for the monetary system of the future.
"We argue that the monetary system of the future should harness the new technical capabilities demonstrated by crypto but be grounded in the trust central banks provide (BIS 2022).
In other words, any legitimate transaction that can be carried out with crypto can be accomplished better with central bank money. Central bank digital currencies (CBDCs) and other public infrastructure can underpin a rich and diverse monetary ecosystem that supports innovation in the public interest.
Crypto is neither stable nor efficient. It is a largely unregulated sector, and its participants are not accountable to society. Frequent fraud, theft, and scams have raised serious concerns about market integrity.
Crypto has introduced us to the possibilities of innovation. Yet its most useful elements must be put on a sounder footing. By adopting new technical capabilities [by] building on a core of trust, central bank money can provide the foundation for a rich and diverse monetary ecosystem that is scalable and designed with the public interest in mind.
First, wholesale CBDCs (central bank digital assets) - a superior representation of central bank money for use exclusively by banks and other trusted institutions - can offer new technical capabilities...
For instance, the buyer and seller of a house could agree up-front that the tokenized payment and the tokenized title transfer must be simultaneous...
Second, at the retail level, CBDCs have great potential, together with their first cousins, fast payment systems. Retail CBDCs would work as digital cash available to households and businesses, with services provided by private companies.
Central-bank-operated retail fast payment systems are similar to retail CBDCs in that they provide this common platform while ensuring that services are fully connected. Both promise to lower payment costs and enable financial inclusion."