In a proposal to the G20 group of countries, the institutions indicate that a multilateral network of Central Bank Digital Currencies (CBDCs) is something that the top economies should consider.
The institutions argue that international cooperation when it comes to implementing CBDCs is essential to responding to digital currencies. This comes as most countries continue to work on their CBDCs.
China in particular is speeding ahead with its digital Yuan.
According to the global institutions, the primary benefit from an international network of CBDCs is that they would increase the efficiency of cross-border payments.
The proposal also indicates that cross-border payments are beset by many intermediaries, a situation that causes transaction delays and high costs. The fact that these intermediaries operate across timezones worsens the inefficiencies.
To add to this, the institutions also note that a lack of transparency in cross-border payments is another problem when it comes to global efforts toward anti-money laundering and combating terrorism finance.
Despite their potential, the proposal warns that cross-border flows involving CBDCs can have a destabilizing impact on economies:
Local Central Banks could struggle to deal with a sudden flow of capital enabled by the more friction-less flows presented by digital currencies.
Secondly, these flows can have an impact on how countries manage their exchange rates. According to the proposal, if foreign currencies become more easily available, this can lead to widespread currency substitution, a situation that can easily lead to adverse effects for Central Banks.
Because of the potential adverse macro-economic impact, the Bretton Woods institutions pointed out that it is important for countries to integrate their CBDC efforts, including seeking uniform design principles, and ways to manage the risks attendant with their adoption.
Such integration could involve standardization, policies, and development of new international payment infrastructure. Countries would also need to align their efforts toward anti-money laundering and combating terrorism finance.