A top executive at the IMF believes that the private sector could play a pivotal role in the development and integration of CBDC’s with existing financial ecosystems. Tobias Adrian, a Monetary and Capital Markets director & financial counselor at the IMF, shared these sentiments during the R3 sponsored “Building CBDC: A Race To Reality” conference that took place last week.
Surprisingly, this take is completely different from the U.S Fed view on private sector contribution in CBDC development, which thinks monetary functions should be carried out solely by financial watchdogs.
IMF ‘Take’ on Private Sector Role in CBDC
As more debate continues in hopes of arriving at a consensus, stakeholders have contributed their views on how a CBDC could be implemented. Adrian has since added to this discussion following the keynote speech at last week’s conference. In his opinion, the private sector could be on-boarded for value addition in two ways.
The first approach would be a collaboration with central banks such that private entities issue the CBDC’s on behalf of monetary authorities. This is the synthetic model whereby the issued digital assets are, in turn, guaranteed by a central bank. Therefore, financial institutions involved in this process would carry out qualifying and onboarding processes, leaving the watchdogs to deal with oversight.
Another probable model highlighted by Adrian is the two-tier, which is currently in motion with China’s digital yuan. In this case, central banks like the PBoC issue their digital assets and oversee transaction settlements but leverage technological advancements for these processes. China, for instance, is working with some state-backed and private financial institutions as it prepares for the massive roll-out of its digital yuan. According to Adrian, this angle is more likely to spur fundamental innovation which,
“could be extremely valuable, given the pace of technological change, and given many central banks’ limited experience in providing retail services.”
However, he was also keen to point out some probable challenges that might arise from working with the private sector. They include payment network stability, unfair competition, and interoperability, given most solutions are yet to prove their effectiveness should network scale at global levels.
The Fed’s Contrary Take
As the IMF signals a consideration in working with the private sector, U.S Fed Chair recently said that they should not be part of the CBDC creation and deployment process. Speaking before the House Financial Services Committee last month, Jerome Powell pointed out that monetary functions ought to be left to central banks. This is because they are the best suited in upholding the good of the public compared to private entities, which merely have the public’s trust.
“I don't think the public would welcome the idea that private employees who are not accountable solely to the public good would be responsible for something this important.”