IMF advisor sees power in global ledger that works with CBDCs

Tobias Adrian, a financial counselor at the International Monetary Fund (IMF), recently discussed ways to revolutionize money with the global equivalent of a central bank digital currency (CBDC) system.

In a speech at a roundtable on CBDCs this week, Adrian explored the underlying infrastructure of money and shared a blueprint for enhancing cross-border and domestic payments, saying it could usher in a new era of financial transactions.

He discussed the difficulties cross-border payments face, including high costs, slow processing and need for more transparency. Adrian noted the IMF, World Bank, Bank of International Settlements and the Financial Stability Board have been working together on this issue.

A potential solution would involve a trusted ledger to provide a secure and reliable electronic system where property rights can be recorded.

“Expressed in today’s language, the vision is for a trusted ledger, which is essentially an electronic document representing property rights on which digital versions of central bank reserves in any currency can be traded among participants,” he said.

Adrian then broke down a platform concept called “XC” for cross-border payments and contracting, which consists of three main layers: settlement, programming financial contracts and managing information.

The idea would be to promote seamless money settlement across multiple fiat currencies on a single system. 

Multicurrency system without a new settlement token

The IMF suggests developing distinct and standardized digital representations for fiat currencies, allowing for interchangeability.

Under the vision, XC platforms would facilitate multicurrency transactions without introducing a new settlement asset. Cryptocurrencies including XRP have been pitched as such a middleware cryptocurrency. 

The IMF’s XC platforms would instead allow users to freely select the currencies involved, while central banks maintain control over reserve allocation.

Through programming, contracts can be automated (as is the case with smart contracts), allowing for simultaneous currency swaps based on specific price conditions. This eliminates the need for parties to disclose sensitive information to a market maker when submitting their orders.

In terms of information management, XC platforms separate settlement and non-settlement services, including compliance checks. This ensures a clear division of responsibilities. Countries retain control over limits on foreign currency holdings and transactions, as well as compliance checks.

Domestic CBDC systems could plug into global ledger

He pointed out that XC platforms have a broader application beyond cross-border payments and can also benefit domestic financial systems. 

To address this, he suggested the creation of domestic equivalents of the XC platforms, powered by individual CBDCs.

“A CBDC platform would be designed much in the same way as an XC platform. Its single ledger would be compatible with those of private firms,” he said.

He pointed out that more work needs to be done to test the technology and establish the necessary legal and governance frameworks.

CBDC systems vary in implementation and technological underpinnings, but they mostly run on private blockchains controlled by government institutions. This is opposed to the permissionless decentralized networks on which major cryptocurrencies like bitcoin and ether have been deployed.

The IMF has previously suggested that private blockchain networks can make payments and settlements faster and more secure.

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