The International Monetary Fund, in a new study, has urged countries to consider energy consumption when making their design choices for CBDCs. It said the explicit goal of their project should be environmentally friendly.
IMF analysts highlighted that the payments system broadly uses a large amount of energy and moving toward renewables across the entire financial sector should be the aim. Carmelle Cadet, the CEO of CBDC infrastructure provider EMTECH, said there is a broader realization that if CBDC is going to be an infrastructure, it has to be better than the one that exists. Besides processing payments faster with trust and easier traceability, the Central Bank Digital Currency has to be energy efficient.
The IMF report outlined that major cloud service providers are moving toward renewable sources of energy such as geothermal and hydropower. Its also looking for locations with colder climates to reduce its carbon footprint. Moreover, environmental footprint as a selection criterion of a cloud partner can benefit any future digitization project of a central bank. The financial institution believes countries and crypto companies should move away from energy-intensive proof-of-work (PoW) protocols. Cadet explained that different protocols focus on various priorities. There are trade-offs that might not align with energy efficiency.
It should be noted that a number of countries, particularly developing countries, are working on CBDCs. Crypto enthusiasts say this will improve the lives of those living in predominantly cash-driven societies. The Bank for International Settlements, in a recent report, stated that providing a cash-like digital means of payment is the most common consideration for developing a CBDC. It also includes strengthening competition among payment service providers (PSPs), reducing the costs of financial services, and increasing efficiency.
The IMF is looking at cryptocurrency’s impact on the environment as environmental, social, and governance-focused investing and climate change are at the front of countries and agencies across the world.