The International Monetary Fund (IMF), the 189-member international body focused on global monetary cooperation, is increasingly doing its homework on the possibilities of using blockchain tech to meld public and private banking — at least if a new blog from two of the organization’s top officials is any indication.
The blog, authored by Tobias Adrian and Tommaso Mancini-Griffoli, was published on September 26th and dubbed “From Stablecoins to Central Bank Digital Currencies” — a followup to a more general piece on stablecoins the duo published last week.
While the post is said to specifically represent the views of only the authors, the writers are influential within the wider IMF. Adrian is the Director and Financial Counsellor of the body’s Monetary and Capital Markets Department, while Mancini-Griffoli serves as a Deputy Division Chief in the organization’s Monetary and Capital Markets Department.
In their latest piece, both experts highlighted how stablecoin projects could become more stable and more regulated if they relied on central bank reserves to underpin their value. Doing so would lead to the creation of what they call a synthetic central bank digital currency (sCBDC).
A New Way Forward? A New Kind of CBDC
“[The sCBDC] offers a blueprint for how central banks could partner with the private sector to offer the digital cash of tomorrow,” the duo said.
So how would such a system work? Literally through a stablecoin project backing every one of their tokens 1:1 via central bank reserves.
Typically, such reserves are used to manage payments between commercial banks, but the general concept that has guided the argument for an sCBDC backed by reserves isn’t a new one, Adrian and Mancini-Griffoli wrote:
“The solution is not novel. The People’s Bank of China, for instance, requires giant payment providers AliPay and WeChat Pay to do so, and central banks around the world are considering giving fintech companies access to their reserves—though only after satisfying a number of requirements related to anti-money laundering, connectivity between different coin platforms, security, and data protection among others.”
The authors added that such a structure could make stablecoins considerably more popular, to the point that there might eventually be a “social price tag” as these stablecoins eat into commercial banks’ customer bases:
“Clearly, [relying on reserves] would enhance the attractiveness of stablecoins as a store of value. It would essentially transform stablecoin providers into narrow banks—institutions that do not lend, but only hold central bank reserves. Competition with commercial banks for customer deposits would grow stronger, raising questions about the social price tag.”
The Potential Advantages
The IMF staff members think the sCBDC model has unique advantages beyond being stabilized via “perfectly safe and liquid assets.” Chief among those advantages? The regulatory clarity the format would bring since “narrow banks would fit neatly into existing regulatory frameworks.”
Beyond that, the duo noted an sCBDC token could be instantly settled, as a central bank would be facilitating the settlements. Moreover, they said these institutions could offer stablecoins “support for domestic payment solutions in the face of foreign-currency stablecoins offered by monopolies that are hard to regulate” — perhaps an implicit reference to China’s coming CBDC or Binance’s Venus.
In other words, Adrian and Mancini-Griffoli argue a sCBDC can offer the best of both worlds:
“In the sCBDC model, which is a public-private partnership, central banks would focus on their core function: providing trust and efficiency. The private sector, as providers of stablecoins, would be left to satisfy the remaining steps under appropriate supervision and oversight, and to do what they do best: innovate and interact with customers.”
Advantageous as they could be, though, it’s likely we won’t see such a token for at least several years. The rest of the world will have to catch up in the mean time.
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