- Recently, the advancement of global central bank digital currencies has accelerated.
- IMF will publish a report on the progress of global digital currencies next week, studying the impact of private sector digital currencies
- Financial stability problems have intensified in some countries.
The International Monetary Fund (IMF) predicted that global GDP would shrink by 4.4% in 2020, an increase of 0.8 percentage points from its June forecast. This year, China is still the only major economy that the IMF expects to achieve positive growth. Tobias Adrian, head of the IMF’s currency and capital markets department, said this in an interview.
Speaking in an exclusive interview with a reporter from China Business News, Adrian said that China’s economic recovery leads the world, and the People’s Bank of China’s digital currency (DCEP) pilots are the world’s leaders.
He believes that the current DCEP still focuses on M0 (cash in circulation), which has little impact on banks. In the initial stage, DCEP will pay more attention to domestic applications.
In the future, as more countries begin to pilot central bank digital currencies (CBDC), the cross-border use and convertibility of CBDC will receive attention.
Recently, the advancement of global central bank digital currencies has accelerated. There are many mainstream central banks that have changed their conservative attitudes in the early years and accelerated research on CBDC.
China has taken the lead in conducting related trials. At 8:00 AM on October 11, the Shenzhen “Luohu Digital RMB Red Envelope” appointment ended, and the system successfully completed the pilot appointment registration. This is an important step in the development of digital RMB.
Adrian said: “China’s digital currency pilots are leading the world. The IMF pays close attention to China’s digital currency pilots in some urban areas.” From the perspective of currency statistics, the central bank’s digital currency belongs to M0, that is, the category of cash. M1 or M2, so he believes that there is no need to worry about the initial impact on the bank.
It is worth mentioning that, just like after the 2008 financial crisis, the “dollar shortage” caused by the epidemic this year has shaken the global market. The current discussion on accelerating the internationalization of the RMB is heating up. The issuance of DCEP is also a key part. DCEP has the advantages of cross-border payment.
Should DCEP focus on domestic or cross-border? In this regard, Adrian said:
“Currently, China’s pilot projects are mainly focused on domestic applications. My understanding is that the plan of the People’s Bank of China is still focusing on domestic applications, while cross-border issues involve the issue of full currency convertibility. On the one hand, we need to do more to realize the convertibility of digital currencies. There is still a lot of coordination work to be done at the international level.”
Adrian said that the IMF will publish a report on the progress of global digital currencies next week, studying the impact of private sector digital currencies (such as stablecoins) and central bank digital currencies on monetary policy and macroeconomic activities.
On October 13, the Global Financial Stability Report (GFSR) issued by the IMF mentioned that unprecedented and timely policy responses have helped maintain the continuous flow of credit to the real economy and built a bridge to economic recovery.
However, financial stability problems have intensified in some countries. Companies borrowed more debts in response to cash flow shortages, and the authorities expanded fiscal deficits to support the economy.
This increased the vulnerability of the non-financial corporate sector and the sovereign sector, namely, companies, banks, non-bank financial institutions. The interconnectedness of risks in the sovereign sector has increased.
Adrian told CBN reporters that at this stage, policy support is still necessary, and it is dangerous to withdraw prematurely. However, after the epidemic is controlled, liquidity support can be withdrawn gradually, and banks should gradually rebuild capital and liquidity to develop credible plans to reduce problematic assets.
Fortunately, he said that, according to the IMF’s stress test, even under the negative circumstances of a longer epidemic, the global banking industry is still relatively stable.