IMF Suggests Governments Set Up Own Cryptocurrencies
Fintech fantasy? Nation states should build their own digital currency to prevent its use by money launders and fraudsters
Christine Lagarde, the head of the International Monetary Fund (IMF), has called for governments to harness change going on in the fintech arena, and consider setting up their own digital currency.
She said that technological change, which disrupts habits, jobs, and social interactions, can at times appear daunting and even threatening. But nations and central banks should embrace new technology and consider the benefits of setting up their own national cryptocurrency.
There is little doubt that cryptocurrencies such as Bitcoin have had a bad press in recent times. In September this year British MPs called for regulation to provide consumer protection and stem money-laundering.
Fintech change
And earlier this year Microsoft co-founder Bill Gates expressed major reservations about cryptocurrencies, and accused the technology of killing people in a direct way.
But the IMF’s Lagarde in a speech at a fintech conference in Singapore pointed out that times are changing, and that some shops are already stopping accepting traditional cash, in favour of digital transactions.
“Even cryptocurrencies such as Bitcoin, Ethereum, and Ripple are vying for a spot in the cashless world, constantly reinventing themselves in the hope of offering more stable value, and quicker, cheaper settlement,” said Lagarde.
She said that central banks will have a major role in new monetary landscape in the years ahead.
“Providers of e-money argue that they are less risky than banks, because they do not lend money,” said Lagarde. “Instead, they hold client funds in custodian accounts, and simply settle payments within their networks.”
“For their part, cryptocurrencies seek to anchor trust in technology,” she said. “So long as they are transparent – and if you are tech savvy – you might trust their services.”
But she said she was still “not entirely convinced” and that “proper regulation” was required.
“Should we go further? Beyond regulation, should the state remain an active player in the market for money? Should it fill the void left by the retreat of cash?,” she questioned. “Should central banks issue a new digital form of money?”
“A state-backed token, or perhaps an account held directly at the central bank, available to people and firms for retail payments?” said Lagarde. “This is not science fiction. Various central banks around the world are seriously considering these ideas, including Canada, China, Sweden, and Uruguay. They are embracing change and new thinking – as indeed is the IMF.”
“Today, we are releasing a new paper on the pros and cons of central bank digital currency,” she said. “It focuses on domestic, not cross-border effects of digital currency. I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy.”
Crypto Concern
Lagarde’s position is sure to be welcomed by supporters of cryptocurrencies, but there is little doubt there remains widespread concern about cryptocurrencies, which has been exploited extensively in the past for illicit uses.
Last year for example researchers discovered that a script for mining cryptocurrency had been maliciously placed on popular sites across the web.
The British Bankers Association (BBA) has previously warned that cryptocurrencies could be used to help fund terrorism.
Indeed, soon after the Paris attacks in 2015, the European Union (EU) discussed a crackdown on cryptocurrencies to try and prevent anonymous transactions being used to fund terrorist attacks.
