IMF chief hails India's work on CBDCs but warns of risks from new fintech

IMF Chief Kristalina Georgieva (Image: Reuters)

The International Monetary Fund (IMF) has hailed India's work on digital payment methods such as the Unified Payments Interface and the Central Bank Digital Currency (CBDC), saying it could hold lessons for other countries.

"Most IMF member countries are now actively evaluating central bank digital currencies that could bring substantial benefits, such as more resilient payments in disaster-prone countries and greater financial inclusion," Kristalina Georgieva, the IMF's managing director, said in a statement on February 22.

"India has conducted an in-depth assessment of CBDCs, which could inform similar studies elsewhere, accelerating digital progress worldwide," she added.

In October 2022, the Reserve Bank of India (RBI) published a concept note on CBDCs, which was followed by the launch of a pilot project for a wholesale CBDC on November 1 and a retail CBDC on December 1.

With multiple banks taking part in the pilot projects, the Indian central bank is looking to expand the scope of its retail CBDC pilot project in the coming months to a much wider scale, while the wholesale CBDC is used by banks' treasuries in the buying and selling of government securities in the secondary market.

The IMF chief's comments come on the same day as the meeting of the deputies of G20 finance ministries and central banks in Bengaluru.

The meeting of the deputies, co-chaired by Economic Affair Secretary Ajay Seth and RBI Deputy Governor Michael Patra, comes ahead of the first meeting of the G20 finance ministers and central bank governors, scheduled for February 24-25 in the southern state capital city.

Georgieva noted in her statement that India's strong growth performance remains a "bright spot" at a time of elevated global uncertainty.

"So, it's fitting that Group of Twenty finance ministers and central bank governors will gather in Bengaluru this week… But beyond its role as a global growth engine, India is uniquely positioned to bring countries together," she added.

But even as the head of the IMF talked up the role new digital payment products could play going forward, she cautioned that "any new financial technology also comes with risks", alluding to the collapse of crypto exchange FTX.

"That is why we need the right policies – for example, to strengthen financial regulation and develop global standards that can apply evenly across borders. The IMF's work on crypto assets is particularly focused on macro-financial policies."

Crypto regulation is going to be one of the focus areas in this week's G20 meetings in Bengaluru, with a seminar being held on the matter to help build a consensus on crypto assets.