Capital Flow Management Measures in the Digital Age (2): Design Choices for Central Bank Digital Currency

This paper investigates implications from cross-border use of central bank digital currency on the effectiveness of capital flow measures.
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Volume/Issue: Volume 2023 Issue 009
Publication date: September 2023
ISBN: 9798400252105
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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Economics / General , Business and Financial , Central bank digital currency , Capital flow measures , CBDC implementation , CBDC ecosystem , IMF Fintech Note 2023/009 , IMF Library , smart CFMs , fencing CBDC , Central Bank digital currencies , Capital flow management , Capital flows , Foreign assets , Digital wallets , Global

Summary

This fintech note looks at how capital flow measures (CFMs) could be implemented with central bank digital currency (CBDC), and what benefits, risks and complexities could arise. There are several implications of the analysis. First, CBDC ecosystems should generally be designed such that they can accommodate the introduction of CFMs. Second, thanks to the programmability of the payment infrastructure given by the new digital technologies, certain CFMs could likely be implemented more efficiently and effectively with CBDC compared to the traditional system. Third, implementing CFMs requires central banks to collaborate on practices and standards. Finally, CFMs on CBDC need to operate alongside traditional CFMs.