This paper analyzes the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. Absent strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks. While the appropriate design of the legal framework will up to a degree depend on the design features of the CBDC, some general conclusions can be made. First, most central bank laws do not currently authorize the issuance of CBDC to the general public. Second, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC. While the central bank law issue can be solved through rather straithforward law reform, the monetary law issue poses fundmental legal policy challenges.

Against the backdrop of a rapidly digitalizing world, there is a growing interest in central bank digital currencies (CBDCs) among central banks, including in the Middle East and Central Asia (ME&CA) region. This paper aims to support ME&CA policymakers in examining key questions when considering the adoption of a CBDC while underscoring the importance of country-specific analyses. This paper does not provide recommendations on CBDC issuance. Instead, it frames the discussion around the following key questions: What is a CBDC? What objectives do policymakers aim to achieve with the issuance of a CBDC? Which inefficiencies in payment systems can CBDCs address? What are the implications of CBDC issuance for financial stability and central bank operational risk? How can CBDC design help achieve policy objectives and mitigate these risks? The paper provides preliminary answers to these questions at the regional level. A survey of IMF teams and public statements from ME&CA policymakers confirm that promoting financial inclusion and making payment systems more efficient (domestic and cross-border) are the top priorities in the region. Payment services through CBDCs, if offered at a lower cost than existing alternatives, could spur competition in the payment market and help increase access to bank accounts, improve financial inclusion, and update legacy technology platforms. CBDCs may also help improve the efficiency of cross-border payment services, especially if designed to address frictions arising from a lack of payment system interoperability, complex processing of compliance checks, long transaction chains, and weak competition. At the same time, CBDCs could negatively impact bank profitability while introducing a substantial operational burden for central banks. However, the exact economic and financial impacts of CBDCs need further study and would depend on estimates of CBDC demand, which are uncertain and country- dependent. CBDC issuance and adoption is a long journey that policymakers should approach with care. Policymakers need to analyze carefully whether a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, in addition to risks for the financial system and operational risks for the central bank.

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

Following the companion paper on the new policy challenges related to the adoption of digital forms of money, this paper presents an operational strategy for the IMF to continue delivering on its mandate of ensuring domestic and international financial and economic stability. The paper begins by summarizing the forces driving the adoption of digital forms of money, and the new policy questions that emerge. It then focusses on how the IMF’s core activities and output will need to evolve, including surveillance, capacity development, and analytical foundations. It ends by discusses how the IMF intends to partner with other organization, and to grow and structure internal resources to fulfill this vision.

The value of global cashless payments has been radically increasing worldwide. Despite cash being the most used payment instrument in the world, technological innovation and new consumer preferences are decisively transforming the way consumers pay and manage money. The COVID-19 pandemic may also have been an accelerator of the cashless mega-trend. Private players currently dominate the digital payment ecosystem, urging central banks to seek solutions to ensure public access to legal tender if cash is phased out. In this context, the idea of a Central Bank Digital Currency (CBDC) is gaining momentum. Nevertheless, there is a need to better understand the implications in terms of risks, benefits and potential costs of CBDCs. From privacy concerns to macroeconomic effects, these implications blur the boundaries of the payment and financial systems, challenging the core functions of our economy and society.

A cutting-edge look at how accelerating financial change, from the end of cash to the rise of cryptocurrencies, will transform economies for better and worse. We think weÕve seen financial innovation. We bank from laptops and buy coffee with the wave of a phone. But these are minor miracles compared with the dizzying experiments now underway around the globe, as businesses and governments alike embrace the possibilities of new financial technologies. As Eswar Prasad explains, the world of finance is at the threshold of major disruption that will affect corporations, bankers, states, and indeed all of us. The transformation of money will fundamentally rewrite how ordinary people live. Above all, Prasad foresees the end of physical cash. The driving force wonÕt be phones or credit cards but rather central banks, spurred by the emergence of cryptocurrencies to develop their own, more stable digital currencies. Meanwhile, cryptocurrencies themselves will evolve unpredictably as global corporations like Facebook and Amazon join the game. The changes will be accompanied by snowballing innovations that are reshaping finance and have already begun to revolutionize how we invest, trade, insure, and manage risk. Prasad shows how these and other changes will redefine the very concept of money, unbundling its traditional functions as a unit of account, medium of exchange, and store of value. The promise lies in greater efficiency and flexibility, increased sensitivity to the needs of diverse consumers, and improved market access for the unbanked. The risk is instability, lack of accountability, and erosion of privacy. A lucid, visionary work, The Future of Money shows how to maximize the best and guard against the worst of what is to come.

This report offers an analytical framework that allows for more systemic assessments of distributed ledger technology (DLT) and its applications. It examines the evolution and typology of the emergent technology, its existing and projected applications, and regulatory and policy issues that they entail. This report highlights the trends, concerns, and potential opportunities of DLTs, especially for Asian markets. It also identifies the benefits and risks to using DLT and offers a functional and proportional approach to these issues.