Global policymakers are determined to press ahead with central bank digital currencies (CBDCs) despite the risks and failures associated with them. In November, officials from the International Monetary Fund (IMF), Bretton Woods Committee, and Bank for International Settlements (BIS) issued calls for governments to have the courage and determination to develop CBDCs. However, instead of wasting resources on this flawed idea, policymakers should focus on more essential reforms that would create a freer financial system.
The November campaign for CBDCs began with IMF managing director Kristalina Georgieva urging policymakers to accelerate the development of CBDCs. Bill Dudley, chair of the Bretton Woods Committee, not only called for the United States to develop a CBDC but also for the BIS to establish an international standard. Cecilia Skingsley, head of the BIS Innovation Hub, emphasized that CBDCs should not be dismissed as a solution without a problem.
Interestingly, these calls come at a peculiar time when many countries have already launched CBDCs or are actively researching them. However, none of these projects have proven to be successful. The CBDCs in The Bahamas, China, and Jamaica have struggled to gain adoption despite incentive programs and giveaways. In China, even after millions of dollars were given away, the usage remained low and highly inactive.
Furthermore, some countries may not even have the funds to support CBDCs. In Thailand, plans to distribute 10,000 baht through a CBDC were delayed due to a lack of identified funding. Others raised concerns about the legality of such a handout. Eventually, the prime minister announced that it would be funded by government loans.
In other cases, the CBDC experience has been disastrous. Nigeria’s CBDC faced significant adoption challenges, leading to cash shortages and protests. However, even with these disruptions, CBDC adoption only increased from 0.5 percent to 6 percent.
Overall, the CBDC experience has been a wasteful government endeavor at best and a means of control at worst. Given these failures and risks, it is perplexing why international organizations like the IMF, the Bretton Woods Committee, and the BIS continue to advocate for CBDC development.
Instead of launching CBDCs, governments should focus on policy reforms that would create a more accessible and open financial system. There are numerous reform ideas on the table, such as strengthening financial privacy protections and establishing oversight of federal regulators. For example, addressing the excessive financial surveillance currently in place could reduce costs for financial institutions and make the financial system faster and more affordable.
Importantly, these reforms do not require reinventing the existing monetary system. By prioritizing essential reforms, policymakers can achieve a financial system that benefits everyone.
Nicholas Anthony, a policy analyst at the Cato Institute, emphasizes the importance of these reforms in creating a better framework for financial privacy and a more efficient financial system. It is essential to note that this article provides general information and does not constitute legal or investment advice. The views expressed here are solely the author’s and do not necessarily reflect those of Cointelegraph.