IMF Sees CBDC Adoption Challenges

According to the International Monetary Fund (IMF), Central Bank Digital Currencies (CBDCs) are confronted with a “chicken-and-egg” issue in which consumer adoption is contingent upon merchant participation and vice versa.

The metaphor “chicken and egg” describes a scenario in which two interdependent factors render it challenging to ascertain which should be prioritized.

In this instance, the IMF emphasizes that merchants may be hesitant to adopt CBDCs if consumers are not utilizing them, and consumers may only accept CBDCs if they accept them.

The central bank issues and controls CBDCs, digital representations of a country’s national currency. Unlike decentralized cryptocurrencies, CBDCs have full support from the government.

They aim to offer a secure, regulated alternative to private digital currencies and payment systems by delivering the same functions as physical currency in digital form.

Central banks worldwide are investigating CBDCs to modernize payment systems, enhance financial inclusion, and reduce their dependence on currency.

Consumers Slow to Engage, Uncertain About Widespread Acceptance

Coordination challenges are prevalent in the retail payments market. If stakeholders hesitate to implement products due to concerns that others will not, they may experience difficulties.

This dynamic applies to CBDCs, where consumers and merchants may hesitate to engage if they still determine widespread acceptance. This results in a self-reinforcing cycle of hesitancy that central banks must address to encourage adoption.

The IMF asserts that central banks, the primary leaders of the CBDC initiative, can take a proactive approach to aligning expectations and establishing a consensus among stakeholders.

Many central banks are investigating a two-tier model for CBDC distribution, in which intermediaries, such as commercial banks and payment service providers, facilitate user adoption and distribution.

The IMF stated that this model ensures that central banks maintain oversight while utilizing existing financial infrastructures.

Stakeholder engagement will have a big impact on the adoption of CBDCs. The IMF recommends that central banks adopt an inclusive, iterative approach to comprehend the requirements and concerns of consumers, intermediaries, and merchants.

This entails the attainment of a “product-market fit” for CBDCs, in addition to the resolution of market challenges.

The IMF surveyed 19 countries in the Middle East and Central Asia in June to investigate the potential and adoption of CBDCs. According to the survey findings, CBDCs can improve the efficacy of international remittances and promote financial inclusion.

Many of the 19 countries that were surveyed are currently researching CBDCs. Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates have advanced to the “proof of concept” stage, according to the insights.

“After two pilot programs for the digital tenge, Kazakhstan continues to be the most advanced.”