LATAM Central Banks Show Interest In Developing Digital Currencies (CBDC) – Bullfrag
Central bank digital currencies (CBDCs) are becoming popular in Latin America. The International Monetary Fund claims that central banks are interested in developing CBDCs. Experiences with stablecoins in parts of the Americas have been beneficial to users, but lack government control.
The IMF report states that the use of CBDCs could help reduce costs and improve financial inclusion. They also stated that it makes it easier for central banks to intervene and regulate the economy, as well as a greater effectiveness of monetary policy.
The IMF has published a report that shows that almost all central banks in Latin America are interested in developing their own CBDCs. The IMF states that while it does not believe these digital currencies will replace traditional fiat currencies, could be a valuable tool for governments use them in their economic management.
report data
According to data from the report published in February of this year, 15 out of 17 central banks are interested in using CBDCs to address issues such as financial inclusion and consumer protection. It was also found that many governments were looking at ways to issue digital currencies that could be used for payments and other types of transactions.
Despite the fact that in the past central banks did not bet on the use of cryptocurrencies, this trend has changed, the data shows that “Half of the respondents were considering both a retail and a wholesale CBDC, forty percent focus only on a retail CBDC, while only two were looking for a wholesale CBDC. Most of the respondents have been doing research on the topic, with about a little less than half of them working on experiments or proofs of concepts for a CBDC, a fifth are working on setting up a CBDC pilot, and two reported having plans to issue ( Jamaica and Mexico)” relates the report.
Statistical graphs of the surveys – Source: International Monetary Fund
From the data in the report, it appears that most central banks do not have concrete plans to issue a CBDC, although the probability of issuance increases in the medium term. “In fact, it is very likely that only Jamaica will issue a wholesale CBDC in the next few years, while Brazil and Mexico plan to issue a CBDC in the medium term.” reviews the report. Despite these statements, it is noteworthy that Jamaica has already issued its CBDC and Brazil has started its pilot test.
Furthermore, the survey data revealed that the majority of central banks do not have the legal authority to issue a CBDC or report that they are unsure of the perspective or projection that the government may have on this type of matter. Among those surveyed, only Paraguay claimed to have the legal authority to issue a CBDCwhile, according to reports, Jamaica was in the process of changing the law as needed.
Survey data on the possibility of issuing a CBDC – Source: International Monetary Fund
Advantages of using CBDCs
The IMF has stated that central banks are showing interest in developing their own CBDCs, and this is especially relevant in Latin America. The countries of the region are realizing that cryptocurrencies can be a valuable tool to boost its economy and provide more financial options to the population.
Cryptocurrencies are already being widely used in some Latin American countries as an alternative to traditional financial systems.. And now, with the rise of CBDCs, central banks will be able to control and monitor the use of these digital currencies, which can lead to greater stability and trust in the system.
It is important to note that this new trend does not mean the end of traditional fiat currencies, rather it is an evolution of the financial system. Cryptocurrencies and CBDCs can coexist and complement each other to provide more choice for users and investors.
The report states that: “most countries in Latin America and the Caribbean consider the use of crypto assets as a marginal phenomenon, but are concerned about its impact on financial stability and integrity. Most of the respondents see the use of crypto assets as trivial or only used by niche groups (except El Salvador, Panama and Colombia)”.
The data collected leads the IMF to conclude that this same belief is maintained about national payments and the lack of knowledge about the use of crypto assets as means of cross-border payment, the report reveals that: “Most central banks do not have information on the evolution of its use. The few respondents who responded on this topic state that the use of crypto assets was increasing for both domestic and cross-border payments. In light of these trends, around three-quarters of respondents are looking at the financial stability and integrity impacts of these digital assets and most of them (for example, El Salvador, Nicaragua and Mexico) have or are in the process of establishing a regulatory framework for them“.
Graph of responses to the survey on the importance of the use of CBDCs – Source: IMF
In such a way, central banks responding to surveys express interest in CBDCs, while appearing to rely on the legislature to regulate this part of the industry that allows them to move forward.
A CBDC, or digital currency issued by a central bank, could offer several advantages for Latin American countries. Some of these advantages, among others, could be: Greater financial inclusion, reduction of informality, reduction of transaction costs, greater security, more efficient monetary policy, greater regional integration. In fact, in recent months, there has been talk about the possibility of creating a common digital currency for the countries Brazil and Argentinawhich leads to greater speed and ease of transactions between both countries.
Differences between private stablecoins and stablecoins issued by a central bank (CBDC)
To start, it is necessary to refer to the issuing entity. A stablecoin like USDT, USDC, USDP are issued by private entities, companies or consortia; when the issuer changes, and issues them A central bank, as we have indicated in this note, is known as a CBDC (digital currency issued by a central bank).
Another marked difference is the backing, the stablecoins or stablecoins as they are known, find their stability with the fiat currency or by a combination of assets that support that peg; that is to say; for each digital currency issued, there is a cash deposit or a series of financial assets that guarantee that solvency to issue the currency; In the case of CBDCs, it is the central bank that fully or partially supports their stability, since they can diversify with other types of assets other than fiat currency, be it minerals or another type of asset that the central bank regulates and controls.
In terms of value, both the stablecoin (private) and the currency issued by the central bank hold the same value, so there are no differences at this point. The same happens with accessibility, being digital, it seeks more financial inclusion and aims to universalize its use, in such a way that it is available to anyone.
Regarding the regulation and anonymity of stablecoins, private ones may or may not be anonymousIt depends on the protocol. As for bank stablecoins, anonymity will depend on the bank, although, in the case of Brazil and Jamaica, for example, it is public knowledge that their CBDCs are issued by the central bank. The regulation, for its part, depends on the regulators for both cases, in addition to the same entity that issues them in both cases.
The other difference that can be made about both digital assets refers to the economic impact that they can have, in the case of private stablecoins, it is limited to the users of the stablecoins, and in the case of stablecoins issued by the central bank, can have a significant impact on the country’s economy.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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