For token-based CBDCs, central banks need to have explicit permission to issue currency in general rather than limiting their powers to banknotes and coins. Appropriate legislation should be drafted with explicit reference to the currencies being in the form of banknotes, coins, and digital tokens. The authors explain that such emphasis on the explicit legal basis is so that innovative CBDC features are not restricted.
As an aside from the key issues, the IMF envisages a problem if a tokenized currency is interest-bearing. The first issue is that to have interest payments, legally, there would need to be a loan. And to be a means of payment like cash, the payment amount needs to be the face value. As soon as a token is interest-bearing, just like bonds, its value is determined by the interest rate, not just its face value. That raises issues with convertibility. In other words, a one-dollar interest bearing CBDC is unlikely to be exchangeable one-to-one for a one-dollar bill.
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