Tao Zhang, Deputy Director General of the International Monetary Fund (IMF), delivered a speech for the London School of Economics. In this speech, Zhang talked about digital currencies, mainly digital central bank currencies.
What are the Advantages?
According to IMF Deputy General Manager Zhang, central banks can take advantage of certain features of digital money.
Zhang first referred to the currently used cash system and said that printing cash and maintaining the cash system is costly for central banks. Zhang also reminded that people living in rural areas cannot access physical financial institutions and this lowers the financial participation rate.
According to Zhang’s comments, a digital currency to be developed by the central bank enables people to participate financially without opening any bank account. Central banks can also better manage their monetary policies and control the economy more effectively with this digital currency. Zhang also thinks that this digital currency can be used to manage competition in major sectors, and that central banks can use their own digital money to combat the digital money of private companies.
What are the Disadvantages?
According to the IMF Deputy General Manager, digital central bank money has certain advantages as well as disadvantages. According to Zhang, the most important of these is the impact of this digital currency on the banking sector. According to Zhang, the fact that the central bank issues its own digital money may push people not to use their bank accounts. This will hurt the banking sector as well as making it difficult to provide loans to the economy.
Stating that digital central bank currencies can also cause problems in providing liquidity, Zhang thinks that this money can undermine the reputation of the central bank above all else. His statements on the subject are as follows:
“Using a digital central bank money means; it means that the central bank has to follow the payment chain from start to finish. For this, he will probably have to contact consumers, develop new types of wallets, use new technologies, spy on transactions and be responsible for all AML / CFT violations. If the central bank fails to fulfill any of these responsibilities due to a possible technological error, cyber attack or human error, the reputation of that central bank may be damaged. ”
Saying that they continue to do research on digital central bank money, Zhang says that the advantages and disadvantages mentioned above may change over time. According to Zhang’s comments, studies in this area may inspire new projects, new methods and systems:
“As the IMF, we make reviews about digital central bank currencies and fintech in general. In this process, we started to speed up the research and analysis we did. ”