- Nouriel Roubini aka “Dr. Doom” states the world is headed the digital way
- Many central banks are already considering CBDCs
- IMF has encouraged governments to consider having their own digital currencies
Cryptocurrencies have recently been rapidly gaining the public eye, including leaders in high places. The world’s central bankers are now debating central bank digital currencies (CBDCs), especially after the IMF Director’s endorsement.
Towards a Cashless Society
The world’s economy is inevitably headed the digital way with investments and money transfers all going paperless and cryptocurrencies only being the newest kid on the block.
Sweden leads in trailing the blaze towards a cashless society while China is following on its heels with Alipay and WeChat, Kenya with its M-Pesa, India with Paytm and the digital systems like PayPal and Venmo offering attractive alternatives to services that were once the domain of commercial banks.
Talking of the Chinese experience, as of 2018, there are over 1 billion users of WeChat’s multi-purpose messaging, social media and mobile payment App. The Chinese mobile payments market is growing exponentially with over 74 percent of payments being made on the App instead of debit cards or cash while the platform is expected to grow over 68 percent in the next two years.
The majority of the Fintech innovations mentioned here are tied to traditional banks and don’t rely on the blockchain technology or cryptocurrencies.
Nouriel Roubini, professor of economics at New York University’s Stern School of Business and is the co-founder of RGE Monitor, believes that likewise if CBDCs are ever issued, they will have nothing to do with what he calls “over-hyped blockchain technologies.” He states:
“Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be welcomed. Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion.”
Central banks in different parts of the world are already considering CBDCs and, if adopted, this could easily transform the entire monetary system and facilitate the beginning of implementing a systematic and transparent monetary policy.
Central bank digital currencies have the potential of becoming a costless medium of exchange and a store of value besides being a stable unit of account. In order for this to happen the central banks will enhance the effectiveness of CBDCs in fulfilling the basic functions of a public currency.
IMF Pushes for Digital Currencies Adoption
The Director of the International Monetary Fund Christine Lagarde, speaking at the Singapore Fintech Festival encouraged private-public partnerships between central banks and private banks stating that they would facilitate a more “rapid and secure the settlement of cross-border financial transactions.” She explained:
“Individuals could hold regular deposits with financial firms, but transactions would ultimately get settled in digital currency between firms […] would be immediate, safe, cheap, and potentially semi-anonymous […] central banks would retain a sure footing in payments.”
