One of the world’s biggest monetary policymakers, the IMF, analyzed the legal framework behind Central Bank Digital Currencies (CBDCs) in a working paper, dubbed “Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations.” The document was published on IMF’s website.
IMF’s biggest concern is that the current legal framework on CBDCs may prove to have legal, financial, and reputational risks for its issuers. This is the reason central banks still not to have publicly available versions of CBDCs. Furthermore, the IMF notes that “it is not obvious from a monetary law perspective that a CBDC can be granted ‘currency’ status.”
The problem lies within CBDC’s ability to be officially labeled as a “currency.” The IMF stated that there has to be a clear differentiation between central bank money and privately-owned money. Monetary tools like credit balances and commercial bank accounts, called liabilities, should be separated from the crypto sector, as cryptos may not be considered as liabilities.
IMF’s paper also states the need to distinguish currencies like Bitcoin, Ethereum, and XRP from official monetary units, like the U.S dollar, the Euro, or any other national fiat currency.
“These monetary units are clearly established by relevant legislation and must be distinguished from non-official quasi-monetary units (such as BTC (Bitcoin), ETH (Ethereum), and XRP (Ripple)) which are not established by law,” the document reads.
The monetary policymaker also emphasized on the fact that cryptocurrencies like Bitcoin, for example, can currently be described as “money” as the term definition is fairly broad. However, cryptocurrencies have regulatory approval in some jurisdictions, which makes them equal to traditional currencies like banknotes, coins, or book money.
“Some assets (e.g., Bitcoins) may be considered as money under one body of law (e.g., VAT law), but not under another (e.g., financial law).”
The IMF also gave an answer to the question should central banks receive a monopoly grant for issuing digital forms of currencies. According to the report, it is fairly easy to extend the scope of monetary means issuance monopoly into the digital currency sector.
However, the IMF acknowledged that such a decision, despite being “desirable or appropriate” is a question of political consensus. Which could, according to the report, mean “[…] that private issuers, and commercial banks, in particular, would not be authorized to issue digital tokens that incorporate “bearer on demand” claims on the currency. (Those tokens would be different from crypto-currencies such as Bitcoin, which do not incorporate such claims, and are legally more akin to a commodity.)”
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