The International Monetary Fund (IMF) has made an interesting prediction that central banks around the globe will issue digital currencies in the future.
In a sign of the times, the IMF released a report detailing a fintech survey that found central banks trending towards digital currencies. The survey covered 96 financial institutions spread across member countries of the IMF.
The financial establishment is panicking. Buy #bitcoin.— Ivan Franciscovich ~Liberate the Banked~ (@IvanFranciscovi) June 29, 2019
While the organization says it received wide-ranging views on the future of cryptocurrency and digital currencies, there was a clear belief that central banks will move away from pure fiat.
According to the report,
“About 20 percent of respondents say they are exploring the possibility of issuing [digital] currencies.”
The report continues, stating that most of the work by central banks to develop digital currencies is still in the early stages. Only four respondents claimed to be in the midst of a pilot program. Uruguay was one of the four featured, with several other countries, including China, Sweden and Ukraine “on the verge” of testing a digital currency.
In regards to the reason for digital currency adoption, respondents highlighted cost-savings and improved efficiency.
The main reasons cited in favor of issuing digital currencies are lowering costs, increasing efficiency of monetary policy implementation, countering competition from cryptocurrencies, ensuring contestability of the payment market, and offering a risk-free payment instrument to the public.
Dwindling interest in cash has been a catalyst for central banks in developed countries to pursue digital currencies. With physical fiat becoming a less common form of payment, digital currencies make sense in an increasingly online-driven marketplace.
The IMF report also found a lack of uniformity in Europe’s approach to fintech adoption, despite having a high rate of mobile phone and internet access. The UK was singled out as being well ahead of the pack “both in terms of fintech innovation and investment.”
While central banks may be considering digital currencies, cybersecurity and data protection are the overwhelming concerns globally. Seventy-nine percent of respondents identified cyber risks as a problem facing the financial sector.
Bitcoin and other cryptocurrencies have historically been viewed as antithetical to financial security by economic powers. However, central banks adopting digital currencies is one way for them to get ahead of the growing trend in issuing digital tokens, such as the stir created by Facebook over Libra.