IMF Proposes Eco-Friendly CBDCs And Mechanisms For Payment

IMF Proposes Eco-Friendly CBDCs And Mechanisms For Payment
The International Monetary Fund (IMF) urged central banks to include additional features in the CBDCs, such as compliance, greater resilience, and offline capabilities.

An International Monetary Fund (IMF) study on energy consumption revealed the importance of crypto ecosystem design choices in creating an environmentally friendly mainstream payment system.

The IMF examined the energy consumption of crypto assets based on their distinct design elements in the study “Digital Currencies and Energy Consumption” to determine the best mechanism for developing central bank digital currencies (CBDCs).

The IMF recommended moving away from proof-of-work (PoW)-based distributed ledger (DLT) applications in order to lay the groundwork for policy discussions about the environmental impacts of digital currencies, adding:

“In particular, Bitcoin (BTC), the best-known application of this type, is estimated to consume much energy (about 144 terawatt-hours (TWh)) per year. Although scalability solutions reduce the energy cost per transaction, they do not reduce the overall energy spending.”

However, when compared to the traditional financial system, the international organization recognized the high energy efficiency brought about by non-PoW, permissioned crypto assets:

“The potential of non-PoW permissioned crypto assets to reduce energy consumption relative to the existing payment system comes about from energy savings on both core processing architectures and user payment means.”

As a result of the study, the IMF advises central banks to “design CBDCs with the explicit goal of being environmentally friendly.” This means starting with platforms, hardware, and design options that have “a lower carbon footprint than the legacy systems of the central banks.”

In addition to eco-friendly components, central banks were advised to include compliance, higher resilience, and offline capabilities in CBDCs.

The IMF also stated that policymakers will weigh the environmental impact of the technology’s underlying design when considering the mainstreaming of crypto or CBDCs. According to the study, the global payment system consumes 47.3 TWh of energy per year, roughly matching the yearly consumption of economies such as Portugal and Bangladesh.

To help combat climate change, the Iota Foundation, a nonprofit DLT ecosystem provider, collaborated with Dell Technologies to create a real-time carbon footprint tracking system.

The initiative will result in near-real-time carbon emissions tracking from BioE’s sustainable energy and composting facility. The Iota Foundation’s head of sustainability, Mathew Yarger, stated:

“We’re now able to track and verify data around climate change and how we’re actively trying to address it at a level that’s never been achieved before.”


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