The International Monetary Fund published a new working paper on central bank digital currencies (CBDCs) and their legal ramifications. In the paper, researchers, including IMF legal counsel Wouter Bossu and Catalina Margulis, argue that current frameworks are inadequate for issuing CBDCs. The researchers are particularly concerned about how existing definitions of money can apply to such a new technology, but, optimistically, suggest the problem is simple enough to fix. Central banks around the world are currently exploring CBDCs.
Central banks need a new legal framework for CBDCs.
According to the IMF researchers, the absence of an explicit and robust legal basis for the issuance of token-and/or account-based CBDC can be relatively easily remedied through targeted central bank law reform.” The new research paper also questions whether the monopoly that most central banks enjoy in the issuance of fiat currencies is reasonable enough, except that they seem to be suggesting rendering private fiat-pegged stablecoins illegal.
The IMF research also notes that the issuance of private digital tokens that are similar to CBDCs could give rise to very much the same problems, including a severely disrupted monetary system, caused in the 19th century by the issuance of banknotes by private banks that subsequently could not honor their obligations to convert those notes in real currency.
Re-configuring monetary law will be more challenging than reforming central bank law.
According to the International Monetary Fund research, the re-configuring monetary law will be more challenging than reforming central bank law. The fundamental questions of whether you can consider a token legal tender, as well as how you make sure it’s accepted across a population with varying access to technology, remain unanswered. The People’s Bank of China is all set to become the world’s first major economy to issue a CDBC.