The interest towards Central Bank Digital Currencies (CBDC) keeps growing since the early developments that started more than a decade ago. According to the International Monetary Fund (IMF), about 80% of central banks are exploring CBDC at some level.

Last week the IMF’s Managing Director briefed the pros and cons of CBDC, below are outlined some of them.

Among the advantages of adoption of Central Bank Digital Currency is the enhancement of financial inclusion because there’re is no need for consumers to have a bank account to hold CBDC. This digital solution presents a potential for a payment system because it could run more efficient since the cost of managing would be lower than the cost of managing cash.

A Central Bank Digital Currency could enhance the transmission of monetary policy as well as reduce barriers to the payment sector entry for new companies. The Deputy Managing Director of the IMF also outlined that CBDC could resist the many stable coin initiative and highlighted the need to address private digital currencies.

In terms of disadvantages, the most frequently cited downside is the disintermediation of commercial banks if customers move money from bank accounts into CBDC. This could lead to a situation where less bank credit extended at higher interest rates because banks raise deposit rates to attract more funds.

There is a potential reputational risk as well. A CBDC can suffer cyber-attacks, different kinds of error and glitches that might adversely affect the central bank.

Although Central Bank Digital Currency has the potential advantages for cross border transactions, CBDC nevertheless might endanger economies with high inflation and volatile exchange ranges due to the risk of dollarization.

A number of countries are seriously considering the adoption of CBDC. This week China is one step closer to issuing its official digital currency. The country has finalized the development of the basic functions of its CBDC and is currently drafting the laws governing the circulation of the digital currency.

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