Even though a digital currency would be electronic, it still needs to be as accessible as cash. If the U.S. adopts a digital currency, it would work as an alternative to cash but would also have the built-in advantage of quick money transfer since it’s electronic. Around the world, other countries are a little further along with digital currencies.
On December 31, 2024, the IRS issued Notice , in which it announced a measure of relief for individual taxpayers worried about having to “adequately identify” which digital asset unit they are selling to their custodial broker for an account held with that broker. Under the final digital asset broker regulations (discussed here) (Regulations), as of January 1, 2025, taxpayers are required to adequately identify to their custodial broker which digital asset unit they are selling in their account. In the absence of an adequate identification, the units in that account are deemed sold on a first in, first out (FIFO) basis. However, the Regulations also provide that brokers are not required to receive or track this identifying information until January 1, 2026. This disconnect could cause problems for a taxpayer trying to make an adequate identification during 2025, but whose broker is not yet prepared (or required) to receive that information.
Other private sector players may innovate on top of it and possibly additional fees, but that has to be fleshed out more,” he says. “If I send you money through PayPal, it’s just a promise that money is coming. Your balance may show the funds, but money hasn’t actually moved between banks yet,” according to Cunha.
The central bank grants accounts to commercial banks and other PSPs, and domestic payments are settled on the central bank’s balance sheet. Wholesale CBDCs are intended for the settlement of interbank transfers and related wholesale transactions, for example to settle payments between financial institutions. Wholesale CBDCs and central bank reserves operate in a very similar way. Settlement is made by debiting the account of the bank that has net obligations to the rest of the system and crediting the account of the bank that has a net claim on the system. An additional benefit of settlement in wholesale CBDCs is to allow for new forms of the conditionality of payments, requiring that a payment only settles on condition of delivery of another payment or delivery of an asset.
There has also been discussion about the use of CBDCs to stimulate aggregate demand through direct transfers to the public. The analogy with the payment system is that the market stallholders in the public town square are like PSPs, each offering basic payment functionality with their particular bundle of services, such as banking, e-commerce, messaging and social media. Just as the market stallholders must stick to the standards laid down by the town authorities, these PSPs must adhere to various technical standards and data access requirements. These include technical standards such as application programming interfaces (APIs) that impose a common format for data exchange from service providers (see Box III.B).
The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. It’s a similar story for the other currencies here, including the most valuable crypto in the world, Bitcoin. Its explosion in value in 2021 can find its roots in October 2020, therefore the growth we see in this focus on 2021 is only really the tip of the iceberg. When counting from the first 7 days of October, Bitcoin has since grown by 426 percent.
But certain key parameters, like the one that governs the cap on the supply of bitcoin, are likely impervious to change. 30 See M Bordo and R Levine, “Central bank digital currency and the future of monetary policy”, Hoover Institution Working Papers, 2017. The authors advocate the introduction of CBDCs so that central banks can implement negative interest rate policies more effectively. MCBDC arrangements would allow central banks to mitigate many of today’s frictions by starting from a “clean slate”, unburdened by legacy arrangements. First, they could enhance compatibility for CBDCs via similar regulatory frameworks, market practices and messaging formats (Graph III.12, top panel). Second, they could interlink CBDC systems (middle panel), for example via technical interfaces that process end user-to-end user transactions across currency areas without going through any middlemen.
