### CBDCs Encounter a ‘Chicken-and-Egg Problem’ in Adoption, According to IMF
The International Monetary Fund (IMF) has pointed out a significant challenge facing Central Bank Digital Currencies (CBDCs): a “chicken-and-egg problem.” This dilemma arises as the uptake of CBDCs hinges on both consumer and merchant participation, creating a circular dependency that complicates adoption.
The term “chicken-and-egg” illustrates a scenario in which two mutually dependent factors make it unclear which should be prioritized. In this case, the IMF notes that merchants may hesitate to accept CBDCs if consumers are not utilizing them, while consumers may refrain from using CBDCs if merchants do not accept these digital currencies.
CBDCs represent digital versions of a nation’s official currency, issued and governed by a central bank. Unlike decentralized cryptocurrencies, CBDCs are fully backed by a central authority. Their goal is to replicate the functionalities of physical cash in a digital format, providing a secure, regulated alternative to private digital currencies and payment methods.
Globally, central banks are investigating CBDCs to modernize payment systems, enhance financial inclusion, and lessen dependence on cash transactions.
### Consumer Hesitation and Merchant Concerns
In the realm of retail payments, coordination issues are prevalent. Products often struggle to gain traction when stakeholders are hesitant to adopt them, fearing that others will not follow suit. This situation is particularly relevant for CBDCs, as both consumers and merchants may be slow to engage if they remain uncertain about the broader acceptance of these digital currencies. This creates a self-perpetuating cycle of hesitation that central banks must overcome to encourage adoption.
Central banks, as the leading forces behind the CBDC initiative, can take a proactive stance in aligning expectations and fostering consensus among stakeholders, according to the IMF. Many central banks are considering a two-tier model for the distribution of CBDCs. This model relies on intermediaries, such as commercial banks and payment service providers, to facilitate distribution and user adoption, allowing central banks to maintain oversight while utilizing existing financial infrastructures.
### Engaging Stakeholders for Successful Adoption
The engagement of stakeholders is crucial for the successful uptake of CBDCs. The IMF advises central banks to adopt an iterative and inclusive approach to better understand the needs and concerns of merchants, intermediaries, and consumers. This not only addresses market challenges but also helps achieve a “product-market fit” for CBDCs.
In June, the IMF conducted a survey across 19 countries in the Middle East and Central Asia to explore the potential for CBDC adoption. Insights from this survey indicated that CBDCs could enhance financial inclusion and improve the efficiency of international remittances.
Among the 19 surveyed nations, many are still in the research phase concerning CBDCs. Notably, Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates have progressed to the “proof-of-concept” stage, while Kazakhstan has advanced further following two pilot programs for its digital tenge.
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