The IMF's central bank digital currency handbook

Government money was paper. Then came bitcoin. Then all of a sudden, governments were like: Hey, maybe let's take this digital currency thing seriously?

Driving the news: The International Monetary Fund put out a handbook this week for creating government money native to the internet.

• Not because they think member countries should, but only if they want to.

Be smart: The term of art these days when a government considers putting its money on the internet, natively, is central bank digital currency (CBDC).

• While money is in many ways digital now, it's not quite the same as cash. In theory, a full CBDC could be held by a person without recourse to a third party like a bank — like you can hold cash now.
• It would also be a direct liability on a central bank, whereas all the digital dollars in use now are a liability to an actual bank.

In the weeds: The handbook so far has five chapters. The documents are expected to be updated over time, with more documents added.

• The handbook as written is geared toward going all the way with a CBDC. That is, creating something that normal people could use.
• A halfway measure is creating a CBDC just used by banks and institutions for settlement. Singapore has just started such an experiment.

Chapter 1: How to explore launching a CBDC

The IMF recommends a process for involving a variety of decision-makers in considering whether or not a CBDC makes sense.

• It also, notably, recommends that the team charged with building it imitate the same sort of strategies that startups use to build tech products.
• The handbook recommends running a prototype before going live.

Chapter 2: Product design

• This one is about their 5Ps model for project development: preparation, proof-of-concept, prototypes, pilot, production.
• Crucially, it recommends that developers have clear criteria for moving to next steps each time. It calls it a "go/no go" approach.

Chapter 3: Monetary policy

• Basically, there are a lot of variables and it's hard to say and it depends. But...in bad times, CBDCs will stink for banks, as people could exit for the safety of CBDCs because they will have an option. (Which they don't have now. Well, except.)

Chapter 4: Capital flow management measures

• If a country wants to keep money in the country (that is, capital controls), do CBDCs make that harder? Probably.
• This isn't something we are super psyched about in the U.S. so far, so...

Chapter 5. Financial inclusion

• CBDCs can be designed to be fairly private, not require physical ID and to work without a bank account. All of that can be great for populations that have been excluded from the financial sector.
• Reality check: And if you think that's how any of them will actually be deployed, I've got a bridge to sell you.

Quick take: The IMF totally thinks countries should.

What we're watching: There are lots of little case studies from efforts by member nations throughout the documents that are more fun than the plethora of fairly obvious advice.

The bottom line: "We've left port and are now on the high seas. This calls for courage and determination," IMF managing director Kristalina Georgieva said, promoting the new handbook this week at the Singapore Fintech Festival.