Last week, the IMF’s Legal Department released a Working Paper on the legal aspects of central bank digital currencies (CBDCs), focusing specifically on central bank laws and monetary laws. The authors raised many interesting questions, such as whether central banks should be granted a monopoly for CBDC issuance or whether token-based CBDCs can carry interest. They conclude their study with multiple recommendations on how best to grant CBDCs legal status.
Ultimately, the legal status of a CBDC depends on its operational and technological design features. Account and token-based CBDCs carry different legal significance. For example, account-based CBDCs are not considered to be a new form of money, but instead are the digital form of ‘book money’, which are credit balances on accounts. In contrast, token-based CBDCs are a new form of money where the banks’ liability is incorporated in the token.
Central bank laws define the powers of a central bank to issue a currency. Many central banks are authorized to issue banknotes and coins, book money and bills. But some have a far broader remit, such as issuing currency more generally, which could encompass CBDC.
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