New and developing research by the International Monetary Fund suggests that central banks around the world need new legal definitions for tokenised currencies.
IMF lawyers argue that central banks need reform before they can issue CBDCsNOTICS
On Friday, the International Monetary Fund (IMF) published a new working paper on digital central bank currencies (CBDCs) and their legal ramifications.
In the article, researchers, including IMF legal counsel Wouter Bossu and Catalina Margulis, argue that the current structures are inadequate for the issuance of public-facing CBDCs. The researchers are particularly concerned about how existing definitions of money can be applied to this new technology, but optimistically suggest that the problem is simple enough to correct:
“The absence of an explicit and robust legal basis for the issuance of token and/or account-based CBDCs can be relatively easily remedied through a specific reform of central bank law.
The new article also questions the monopoly enjoyed by most central banks in issuing token coins – which is quite reasonable, except that they seem to be suggesting making illegal private stablecoins tied to trustees:
The issuance of private digital tokens resembling CBDCs could give rise to the same problems, including a severely disrupted monetary system caused in the 19th century by the issuance of banknotes by private banks which subsequently were unable to honour their obligations to convert such notes into real currency.
Ultimately, the paper suggests that reconfiguring the monetary law will be more challenging than reforming central bank law. The basic questions about whether you can consider a token a real currency and how to ensure that it is accepted in a population with variable access to technology remain unanswered.
All the central banks behind the five major global currencies – the US dollar, euro, Chinese yuan, Japanese yen and British pound – are looking to issue CBDCs. A Bank of England leader recently spoke about them as part of a “new monetary order”.
Of the world’s largest economies, China appears to be closest to issuing a CBDC. Many suggest that this is because the Chinese government is willing to use a digital yuan as a surveillance tool, which means that issues of cash-level privacy and the status of bearer bonds are irrelevant. The People’s Bank of China recently published a bill that would in fact make illegal private stablecoins tied to the yuan.