According to the international institution, central banks should steer clear of proof-of-work protocols
According to a new study by the International Monetary Fund, countries planning to develop CBDCs should consider energy consumption when designing them.
Central banks should “design CBDCs (central bank digital currencies) with the explicit goal to be environmentally friendly,” the IMF said in the report.
“What we are seeing now is a broader realization that if CBDC is going to be an infrastructure, it has to be better than the one we have,” Carmelle Cadet, CEO of CBDC infrastructure provider EMTECH, said. “In addition to processing payments faster, with easier traceability and trust, CBDC has to be energy efficient.”
In addition, the IMF encourages countries and crypto companies to abandon energy-intensive proof-of-work protocols, a suggestion that some say could negatively impact users.
“Different protocols focus on various priorities…you have trade-offs that might not align to energy efficiency,”
Carmelle Cadet, CEO of CBDC infrastructure provider EMTECH
According to advocates, CBDCs can drastically improve the lives of people living in predominantly cash-driven societies as more nations, especially developing ones, take steps toward forming their own.
In Jamaica, the upcoming CBDC has already been approved for legal tender. A number of other jurisdictions are exploring the creation of CBDCs, including Brazil, Nigeria, and Haiti. The Sand Dollar of the Central Bank of the Bahamas became the world’s first CBDC in 2020.
It is not surprising that the IMF has chosen to focus on the impact of digital assets on the environment, after all, environmental, social and governance investments are currently at the forefront of many minds.