Governments around the world are looking at central bank digital currencies (CBDC) as a way to improve the existing fiat ecosystem. Technical efficiency of cryptocurrencies, backed by central bank fundamentals, is key to enabling a thriving financial ecosystem, suggests a publication by the International Monetary Fund (IMF).
Addressed to IMF Deputy Managing Director Agustin Carstens and BIS Executives John Frost and Hyun Song Shin, the publication said: “Digital technologies promise a bright future for the financial system.
A BIS study from June found that cryptocurrencies outperform the fiat ecosystem in meeting the high-level goals of the future financial system.
Decentralized finance (DeFi) and its stifling reliance on fiat assets are among the most significant flaws preventing mainstream adoption of today’s cryptocurrencies, suggested by BIS executives.
Both wholesale and retail CBCCs can inherit capabilities from the crypto ecosystem that benefit end users, the article said.
“By embracing the core of trust in central bank money, the private sector can leverage new technologies to create a rich and diverse financial ecosystem.”
It is also recommended that central banks use innovations such as tokens to allow purchases using more fiat currencies – more beneficial to merchants and customers.
Related: India works with IMF on crypto advisory paper
The IMF’s bleak forecast of a global economic slowdown has raised fears of an impending recession in crypto markets. As Cointelegraph previously reported, Bitcoin (BTC) markets may recover when the uncertainty surrounding the current economic situation and geopolitical tensions are resolved.
However, the IMF noted that various liquidations, bankruptcies and losses at major firms such as Celsius, Three Arrows Capital and Voyager Digital Holdings have had a modest impact on traditional financial systems.