What Does The IMF’s Report On Digital Money Really Mean?
AnalysisBit News Today2 min read
In a paper titled The Rise of Digital Money, the International Monetary Fund (IMF) presents a "money tree" encompassing cryptocurrency and examines how digital currencies might affect traditional financial institutions.
The report notes that money is fundamentally divided into two forms: Claim-style money and Object-style money.
Claim-style money entails a person presenting ownership of a set portion of monetary value held elsewhere in order to make a payment.
All electronic bank transfers, cheques, card payments and the like are Claim-type payments since these settlements are made by proving ownership of money held by a bank. Collateralised stablecoin payments also fall into this category, including Tethers, seeing as these exchanges involve passing on a claim to a portion of the collateral backing up a stablecoin.
The primary benefit of Claim-type payment methods is that they make transactions simpler. Cash and Bitcoin, on the other hand, represent Object currencies — and an Object currency exchange is complete as soon as the item, whether cash or cryptocurrency, is exchanged and settled. In such a case, no exchange of information or back-end is necessary, beyond whatever is needed to transfer ownership of the currency.
E-money and Reserve Access
The IMF anticipates that e-money will place strain on traditional banking systems. This is because e-money carries the appealing feature of being redeemable for its exact face value.
For a central bank offering a direct path towards reserve access, it may partner with an e-money provider to effectively provide CBDC to the public. This is an arrangement the IMF calls 'synthetic CBDC', offering selected new e-money providers access to central bank reserves under strict conditions.
As e-money gains traction, the IMF expects that the natural introduction of CBDC will follow, as central banks seek to retain economic control in the face of tech giants providing modern payment experiences.
Banks should be able to respond to these technologies with more attractive services or similar products as they emerge, which will likely happen much faster than people expect driven by network effects, the IMF says.
