IMF Official Says Public-Private CBDC Offers Best of Both Worlds

Published at: May 28, 2020

Tommaso Mancini-Griffoli, a representative from the International Monetary Fund, believes that a synthetic private-public partnership could be the best way forward for a central bank digital currency. 

Mancini-Griffoli, the IMF’s Monetary capital markets department deputy division chief, joined the Money Movement’s latest live session on May 26. The show, which is hosted by Circle CEO Jeremy Allair, explores various themes relating to economics and technology. 

Mancini-Griffo said that the idea of creating a CBDC solely backed by a central bank's reserve and completely under the control of a central bank, is outdated.

A synthetic private-public partnership CBDC, on the other hand, is gaining popularity among the digital currency world and will empower private sectors such as blockchain backed stablecoins to continue to innovate.

He suggested the private sector concentrates on innovation, interface design, and client management. The public sector remains focused on regulation and underpinning trust. This will encourage innovation to continue but within a regulated framework for financial stability. 

Regulation plays a key role 

According to Mancini-Griffoa, unlike the original idea of CBDC which requires the central banks issuing a liability directly to the public, a synthetic CBDC allows the private sector to issue a liability that is used by people to purchase assets for payments. 

The liability would be fully backed by the central bank’s reserves. Central banks would also issue licenses for the liability, which would help to regulate and supervise businesses and institutions. 

A regulated environment may provide an equal playing field for all the private sector stablecoin innovators to continue to grow. He believes that it could also mitigate against the potential financial stability risks that they pose. He explained that: 

“There are a bunch of different stablecoins that are available. It’s hard for consumers to know which ones are fully backed and which ones really offer a claim on the underlying reserves and how liquid and safe are those reserves and are they liquid and safe enough in all states of the world.” 

Migrating risks and encourage innovation 

The public-private partnership CBDC would also encourage competition between digital currency providers and preserve comparative advantages, says Mancini-Griffoa. 

Much of the cost and risk for the public sector, such as technology choices, customer management, customer screening and monitoring including for Know Your Customer, Anti-Money Laundering, and regulatory compliance. Data management would be transferred to the private sector.

Public and private partnership challenges 

The synthetic CBDC is gaining traction, yet challenges still remain. Mancini-Griffoa pointed out that the best way to design a private and public partnership is an ongoing debate, as is deciding who should have the ability to issue the aforementioned tokens. He added that: 

“The question is where do you draw the line of what the public sector does and what the private sector does. The fundamental question is about issuing. Does the public sector issue and the private distribute or do we also allow the private sector to issue?”

Stablecoin and banks collaboration looks promising 

Mancini-Griffoa emphasizes that the intention is not to “rock the boat” of the banking world. He states:

“The banking sector is essentially funded by wholesale, and there wouldn't be an enormous move of deposits away from banks towards a new system of payments."

However, innovative banks will adopt a lot of the new technologies, such as blockchain-backed stablecoins. These stablecoins are irreversible, secure, fast, and capable of processing transactions with a global reach for settling final payments. There will probably even be partnerships between bank and payment services, according to Mancini-Griffoa. 

As Cointelegraph reported previously, the Bank of China appears to believe that the digital yuan will be able to eventually replace cash. Stablecoin experts have pointed out that privacy, custodianship, and financial stability would be the three most challenging elements a CBDC would face.

Tags
Related Posts
Crypto Bahamas: Regulations enter critical stage as gov't shows interest
The crypto community and Wall Street converged last week in Nassau, Bahamas, to discuss the future of digital assets during SALT’s Crypto Bahamas conference. The SkyBridge Alternatives Conference (SALT) was also co-hosted this year by FTX, Sam Bankman-Fried’s cryptocurrency exchange. Anthony Scaramucci, founder of the hedge fund SkyBridge Capital, kicked off Crypto Bahamas with a press conference explaining that the goal behind the event was to merge the traditional financial world with the crypto community: “Crypto Bahamas combines the crypto native FTX audience with the SkyBridge asset management firm audience. We are bringing these two worlds together to create a …
Adoption / May 3, 2022
German federal bank runs successful blockchain system without a CBDC
Germany’s federal bank, the Deutsche Bundesbank, has run successful tests on a project which bridges the traditional finance infrastructure with blockchain technology. Despite the current global rush by central banks to familiarise themselves with central bank digital currency technology, the testing carried out by the Bundesbank, in conjunction with the Deutsche Börse Group and the German Finance Agency, required the issuance of no CB, or any tokenized money at all. The system reportedly relies on two software modules which form a connection between the Bundesbank’s internal system and distributed ledger technology. Instead of creating a token-based system, the bank simply …
Technology / March 24, 2021
Bank of France settles $2.4M fund in central bank digital currency pilot
The Bank of France successfully piloted a central bank digital currency — or CBDC — experiment in December, using the technology to settle monetary fund shares on a private blockchain platform for the first time. As announced by Le Banque de France on Jan. 19, the pilot commenced on Dec. 17, and saw 2 million euros ($2.4 million) worth of simulated shares purchased and sold by investors using a CBDC. The pilot took place with distributed ledger technology provided by SETL — a UK-based regulated blockchain services provider, which also provided the CBDC stablecoin. SETL’s IZNEZ record-keeping platform was used …
Technology / Jan. 19, 2021
Cypherium CEO Predicts CBDC Cross-Border Payments ‘Soon’
Sky Guo, founder of the Cypherium blockchain, predicts that central bank digital currency cross-border payments will happen “in the next couple years” or “even sooner”. In an interview with Cointelegraph on July 13, Guo said that CBDC development among central banks makes it likely that certain countries in European Union, China and America, will take the lead and experiment with cross-border payments sooner than expected. CBDC cross border challenges Countries around the world are experimenting with CBDC pilots domestically, such as ride-sharing giant Didi signing “a strategic partnership” with the Digital Currency Research Institute of The People's Bank of China. …
Technology / July 16, 2020
CBDC activity heats up, but few projects move beyond pilot stage
Government-issued electronic currency seems to be an idea whose time has come. “More than half of the world’s central banks are now developing digital currencies or running concrete experiments on them,” reported the Bank for International Settlements, or BIS, in early May — something that would have been unthinkable only a few years ago. The BIS also found that nine out of ten central banks were exploring central bank digital currencies, or CBDCs, in some form or other, according to its survey of 81 central banks conducted last autumn but just published. Many were taken aback by the progress. “It …
Adoption / May 16, 2022