IMF, TCH: risks and rewards for crypto, CBDCs

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Financial inclusion can be a selling point for digital currencies, but other risks can outweigh those rewards.

There are a number of avenues towards creating and deploying digital offerings that can replace or, depending on how you look at it, supplement paper tickets and coins.

Bitcoin is just one obvious and highly visible example. PayPal and card networks provide ramps for spending crypto at merchants that accept PayPal, Mastercard, and Visa, respectively. Tesla has said it will accept bitcoin payments directly, without converting to fiat.

Stable coins are of course increasingly available, where digital coins such as Circles USDC and the stable coin known as tether, backed by dollar and other liquid holdings, are the subject of a scrutiny by regulators who want to ensure that reserves are not only adequate, but dollar for dollar.

See also: Circles Jeremy Allaire: Cryptocurrencies Are Not a Zero-Sum Game

We were seeing at least some initial forays into central bank digital currencies. As is known, China is at the forefront here, with much smaller nations like the Bahamas having launched digital legal tender (in this case, the Sand Dollar).

Read more: Bahamas Launches Digital Sand Dollar; Adds to the rise of central bank digital currencies

However, all eyes are on the US Federal Reserve and the efforts of central banks are and will be key to what happens to digital currencies on the global stage. Because where the dollar goes, many will follow. The greenback, of course, is the world’s reserve currency unit.

As detailed in interviews in this space through interviews between Karen Webster and Jim Cunha, the Fed’s senior vice president of secure payments and FinTech, ongoing efforts between MIT and the Boston Fed have focused on speed, throughput and resilience.

Read more: Boston Feds Cunha on Building a Payments Network for the ‘Next 100 Years’

But beyond the key focal points of the technology itself, the ways and means of implementing digital currencies, there are thorny points yet to be resolved. Namely: Digital currencies can be built, so to speak, but should they?

And two recent analyzes, respectively from the International Monetary Fund and the clearinghouse, seem to point the way to central bank digital currencies, but there may be some hurdles in the process.

To that end, the International Monetary Fund said in a blog last week, while digital money holds promise for speeding up payments and making them cheaper, and for boosting financial inclusion, getting there will not be a path. straight and narrow.

See also: Crypto-assets as a national currency? One step too far

Digital money, according to the blog, requires significant investments as well as tough policy choices, such as clarifying the role of the public and private sectors in providing and regulating these digital offerings.

No transparent transitions

Some paths are riskier than ever, according to the IMF: among these risky decisions, the use of crypto-assets as national currency. We therefore argue that El Salvador’s recent decision to use bitcoin as legal tender would raise many red flags.

Cryptoassets are unlikely to spread in countries marked by stable inflation and exchange rates. This would mean that stable countries and trading blocs, including the EU, US and China, would be reluctant to embrace cryptos wholeheartedly.

A cryptoasset could become a way for unbanked people to make payments, but not store value. It would immediately be exchanged for real currency upon receipt, the IMF said. This is probably another nail in the argument that cryptos are widely used in retail and commercial environments.

Separately, the clearinghouse, in its own submission late last month, said policymakers should articulate a clear goal for a US CBDC. Identifying the objective is an essential first step, as it will inform other design choices that will need to be made to ensure that the stated objective of CBDCs is advanced.

See also: On the road to a US central bank Challenges and opportunities of digital currency

TCH and IMF articles highlight the fact that existential crypto questions have yet to be resolved. We think this may be because, at least in part, the crypto aspect, bitcoins, Dogecoins, etc. (and in the case of bitcoin, with long and expensive processing times, limitations) later. Consider non-fungible tokens (NFTs) were all the rage not so long ago, but now appear to be a solution looking for a problem.

Central banks who perhaps view China as a key threat in a digital currency arms race may rush to a similar proof of concept which then begs the question: what’s next? What is doable may not be preferable if the Fed’s digital dollars are to be capped, as some have suggested (and as relayed in the TCH report). The fact remains that digital payments have taken root quite easily, where cross-border contactless volumes have increased (as evidenced by payment networks like Visa and Mastercard). Account-to-account transfers have also improved and improve B2B transactions, which has been a key target for wholesale business involving stablecoins.

And there’s the American consumer, 16% of whom have owned or currently own a cryptocurrency, according to research by PYMNTS and BitPay. And why? To invest, but also with the intention of spending using them. Of these consumers, 57% have made at least one purchase with their cryptoassets in the past year.

Read more: The Cryptocurrency Payments Report: How Consumers Want To Use It To Buy And Pay

For bitcoin then, for stablecoins and even for digital dollars, there may not be an easy path to follow.

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NEW DATA PYMNTS: PLAYBOOK SMART RECEIVABLES: EDUCATION EDUCATION

About: Three-quarters of those surveyed in PYMNTS Smart Receivables Playbook, a collaboration with Flywire, consider their own accounts receivable operations to be somewhat or slightly effective. New findings from more than 150 colleges and universities suggest universities need to do more to keep pace with expanding digital payment capabilities.

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