Capital Flow Management Measures in the Digital Age (2): Design Choices for Central Bank Digital Currency (IMF Fintech)

Summary

• Central banks are exploring retail and wholesale CBDCs to complement traditional cross-border payment rails and lower transfer costs.p.7
• In Project Inthanon-LionRock, a daily limit of 200 million THB was enforced on Thai baht balances held by nonresident entities across Thailand banks.p.24
• Certain stock-based CFMs limit foreign asset purchases, such as setting a 1 million dollars annual cap per resident.p.12
• Automated smart CFMs can be implemented across 3 levels in the CBDC ecosystem: user interface, technological architecture, and cross-border platforms.p.15

Key insights

1. The CBDC ecosystem provides three technical levels for implementing capital flow management measures: user interface, domestic architecture, and cross-border platforms.p.15
2. Implementing CFMs at the domestic CBDC architecture level grants direct central bank control, making it ideal for information-intensive and time-critical restrictions.p.17
3. Programmability of payment infrastructure allows for self-executing smart CFMs that reduce monitoring, compliance, and supervision costs compared to traditional systems.p.22
4. Controlling the domestic use of foreign CBDCs without bilateral central bank cooperation requires leveraging traditional on-ramp and off-ramp financial intermediaries.p.19
5. Multilateral cross-border platforms connecting multiple CBDCs permit central banks to enforce CFMs consistently across foreign currencies without needing individual bilateral agreements.p.20
6. Geofencing techniques such as IP or GPS tracking can restrict nonresident CBDC usage at the interface level, though circumvention risks exist.p.13
7. Coexistence between traditional payment rails and CBDC ecosystems requires consistent CFM enforcement to prevent loopholes and regulatory arbitrage.p.25