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IMF: Central Banks Must Coexist With Private Currencies
The rise in private currencies like Bitcoin and Ethereum has forced Central Banks to develop Central Bank Digital Currencies (CBDC). However, a recent report from the International Monetary Fund (IMF) insists that Central Banks must coexist with private currencies for the finance sector to grow.
Central Banks and Private Digital Currencies
The IMF revealed this in a blog post where it analyzed the relationship between central banks and the private sector. It highlighted that cryptocurrencies grow more flexibly than central bank digital currencies (CBDC) due to several factors.
Chief among them is the regulatory needs and administrative bureaucracy that occurs within central banks. This is virtually non-existent in cryptocurrencies which use a decentralized manner to make decisions.
Thus the IMF report recommended that central banks learn from tech giants if their digital currencies thrive. “Central banks will therefore need to become more like Apple or Microsoft to continue to offer MNBCs that explore the frontiers of technology and maintain themselves in users’ wallets as the predominant form of digital currency. “It said.
Central Banks Must Work With Private Currencies
To meet these new expectations, the IMF believes that central banks will have no choice but to cohabit with other currencies. This, according to the financial organization, will be achieved via a symbiotic relationship. This is by providing the option to buy back private money for entirely safe and liquid public money. This could be in banknotes, coins, or central bank reserves held within selected banks.
The IMF further stated that a financial system with only private currencies would be precarious and a system with only central bank digital currencies lacking innovations. The economic organization outlined a scenario where all players in the sector will be forced to coexist naturally. “Each form of money, therefore, relies on the other to deliver the dual monetary system that currently exists – it’s a balance that suits us well,” it concluded.
The IMF report highlights the new phase of the financial system switching from fiat to digital-based currencies. However, it is still in the early stages and lacks clarification regarding different aspects of digital currencies. There must be a balance between government-backed currencies and cryptocurrencies for the financial system to grow.