The IMF’s Central Bank Digital Currency (CBDC) Virtual Handbook is a reference guide for policymakers and experts at central banks and ministries of finance. It also serves as the basis for the IMF’s engagement with country authorities and other stakeholders.
The CBDC Virtual Handbook aims to collect and share knowledge, lessons, empirical findings, and frameworks to address policymakers’ most frequently asked questions on CBDCs. As our body of knowledge and analysis grows, we will continue to add about five chapters every year aiming to provide about twenty chapters by 2026. Moreover, chapters will be periodically updated, reflecting evolving views.
Our first chapters are available below. The next wave of chapters will likely cover financial stability, comparison with other payment innovations, and end-user adoption among other topics. If you would like to propose CBDC-related policy questions on which you think the IMF should focus, please contact us at CBDC@imf.org.
Last Updated: November 2023
Exploring CBDCs is a significant undertaking that involves complex decisions in a rapidly changing digital environment. This chapter presents a dynamic framework that is iterative, flexible, and responsive to new information as it arises. First, countries must clearly establish the policy objectives of CBDCs and relevant success measures. Second, risks must be identified, quantified as much as possible, and accompanied by a strategy to contain them. Third, domestic authorities should undertake a careful assessment of their capacity to experiment with, regulate, oversee, and eventually implement CBDCs. Fourth, communication about CBDCs is crucial and a strategy to guide engagement with stakeholders should be developed early on. Fifth, central banks should establish a set of feature requirements based on the earlier steps. Sixth, a sound legal basis and robust regulatory foundations should underpin the CBDC project from the start. These steps should not give the impression of a linear process. Given rapid developments in technology and the ongoing lessons that are—and will be—learned world-wide, CBDC exploration will need to continue even beyond the point of issuance.
This chapter introduces the '5P methodology' designed to guide central banks in exploring and developing CBDC, from research to potential launch. The methodology draws from experiences in various jurisdictions and incorporates best practices from different industries, and is intended to facilitate experimentation and support progressive decision-making while effectively managing risks. The 5P methodology comprises five distinct phases. The preparation phase focuses on researching trends, defining objectives, establishing success criteria, evaluating feasibility, assessing capacity, and analyzing risks. The proof-of-concept phase involves conducting small-scale empirical tests and validation activities to gain insights into CBDC designs, typically in a laboratory environment. The prototype phase concentrates on the development or acquisition of necessary technologies and the selection of relevant partners. The pilot phase represents the live testing of a quasi-final product, while the production phase marks the final issuance and operation of the CBDC.
CBDCs could affect the macroeconomic environment that underpins monetary policy transmission. A CBDC offers a safe store of value and efficient means of payment, which can increase competition for deposit funding, raise banks’ share of wholesale funding, and lower bank profits. A CBDC also could bolster financial inclusion and help reduce dollarization or cryptoization. These changes in the macroeconomic environment can potentially strengthen the channels of monetary policy transmission if CBDC is appropriately designed. For moderate levels of CBDC holdings, the effects on monetary policy transmission are expected to be relatively small in normal times. However, these effects can be more significant in an environment of low interest rates or financial market stress in which the relative value of a CBDC increases. A non-remunerated CBDC could harden the zero lower bound for interest rates. Finally, a CBDC could increase risks of flight to safety from retail bank deposits in periods of market stress.
This chapter explores the benefits, risks, and complexities of implementing capital flow management measures (CFMs) through CBDCs. It argues that CFMs, when warranted, can continue to be part of a country’s policy toolkit in the digital age. Moreover, the digitalization of information and programmability of transactions—leading to the automation of compliance checks—could bring efficiency gains compared to today’s implementation of CFMs, though raise operational risks. Importantly, the implementation of CFMs would leverage the programmability of CBDC transactions, not of CBDC itself, as money must remain fungible. Several questions need to be further analyzed, for instance the specification of the legal framework surrounding digital CFMs.
Financial inclusion is often a key policy objective for a retail CBDC, especially in emerging and lower-income countries. If properly designed to address barriers to financial inclusion, CBDCs could gain acceptance as a payment mechanism for financially excluded populations. CBDCs can be designed to replicate some of the desirable properties of cash, for instance, access to payments without a bank account, trust associated with central bank money, low or no fees, and less stringent identity requirements for low-risk populations who struggle to obtain formal identity documentation. However, full compliance with financial integrity requirements remains necessary. A CBDC could also offer benefits beyond those of cash, such as the development of financial history to help widen access to credit. A CBDC can thus serve as a valuable entry point to the formal financial system. As a public-sector led initiative without profit incentive, CBDCs could also stimulate competition by lowering the prices of payments and financial services. Moreover, CBDCs can address the needs of remote and low-income populations not well served by the private sector, through availability on a variety of hardware devices and in offline environments. However, a CBDC by itself is not a silver bullet to financial inclusion, as it can face barriers common for digital products such as gaps in digital and financial literacy, and access to electricity and digital networks. A CBDC may not be the best financial inclusion solution for every country, and policymakers should assess a wide range of policies and initiatives, including but not limited to CBDCs, to support financial inclusion.
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