Central banks must design CBDCs to be explicitly environmentally friendly: IMF

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Central banks must design CBDCs to be explicitly environmentally friendly: IMF
Blockonomics


In a study titled “Digital Currencies and Energy Consumption,” the International Monetary Fund assessed the impact of cryptoassets’ design elements on their energy consumption in order to develop an ideal framework for mainstream central bank digital currencies (CBDCs).

The report sheds light on the importance of making the right design choices for the overall environmental friendliness of the crypto ecosystem and its ability to go mainstream.

To facilitate further policy discussions on the current impact of cryptocurrencies on green consumption, the IMF recommends against the use of proof-of-work-based distributed ledger technology applications.

The report highlights Bitcoin’s annual energy consumption of around 144TWh, noting that while scalability solutions reduce energy costs per transaction, they do not impact overall energy spending.

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The organization also recognizes the potential and energy efficiency of non-PoW permissioned cryptoassets:

“The potential for non-PoW-licensed cryptoassets to reduce energy consumption relative to existing payment systems comes from energy savings in the core processing architecture and how users pay.”

With countries increasingly interested in developing their own digital currencies, the International Monetary Fund has recommended that central banks design CBDCs with the explicit goal of being environmentally friendly. According to the report, this includes, but is not limited to, choosing platforms, hardware and design options that have a lower carbon footprint than mechanisms traditionally used by central banks.

The report added that the green part of implementing a CBDC must be studied from the experimental phase itself. The IMF also recommends that central banks integrate features such as compliance, greater resilience, offline capabilities, etc., in the development of CBDCs.

Policymakers will weigh the environmental impact of cryptocurrencies and CBDCs and their underlying technologies, while considering their utility for mainstream adoption, the report concludes.



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