Head of the IMF Suggests Countries Issue Their Own Cryptocurrencies
Christine Lagarde, head of the International Monetary Fund (IMF), said governments should consider a central bank digital currency (CBDCs) to prevent fraud and improve financial services in both developed and developing countries.
Lagarde, speaking at the Singapore Fintech Festival this week, said banks should work to create digital cash systems to keep up with private digital finance developments to prevent less stable, private, networks dominating economies.
Such central bank systems would be less risky for the world’s unbanked, the poorest people in developed countries where all-inclusive financial systems are limited. As well as offering secure systems for more advanced financial infrastructures.
Central banks should take control
Lagarde suggests that central banks should take the role of processing digital transactions, which would offer more stable, regulated systems, and let private-sector providers concentrate on services.
“The central bank focuses on its comparative advantage – back-end settlement – and financial institutions and start-ups are free to focus on what they do best – client interface and innovation,” said Lagarde. “This is public-private partnership at its best.”
The IMF head said the advantages would be an “immediate, safe, cheap, and potentially semi-anonymous,” solution where “central banks retain a sure footing in payments.”
“They would offer a more level playing field for competition, and a platform for innovation,” said Lagarde.
Lagarde believes the increasing societal preference for digital cash is legitimate but that central banks should have oversight to prevent theft, fraud, and the criminal abuse of digital payments and their networks.
Money is changing
“A new wind is blowing, that of digitalization. In this new world we meet anywhere, anytime. The town square is back – virtually, on our smartphones,” said Lagarde, adding that peer to peer exchange of information and services are now common and millennials are reinventing how the economy works.
“Money itself is changing. We expect it to become more convenient and user friendly, perhaps even less serious looking,” she added. She also explained that the expectation for digital cash systems is to integrate with social media and be readily available for online person-to-person use, as well as being cheap and safe.
When giving examples of CBDC’s in development the IMF gave Canada, China, Sweden, and Uruguay as examples of countries seriously pursuing the option of a centrally controlled digital currency.
In July 2018, a Bank of Canada (BoC) published a staff working paper exploring the prospect of a CBDC for Canada which concludes the economic benefit for Canada of introducing a CBDC could be as a high as a 0.64% increase in GDP.
Where other global financial influencers, like the European Union, have been more wary of digital cash and cryptocurrencies, Lagarde appears to have led the IMF to more open stance. In April 2018 she wrote an official IMG blog suggesting an “even-handed” approach to “crypto-assets” was preferred, and that such crypto-assets could have a significant impact on how “we save, invest, and pay our bills.”
The IMF has now published a paper on the pros and cons of a CBDC. This recent, public and positive stance to cryptocurrencies could be two faceted, firstly it could encourage central banks to create a digital currency to keep pace with private sector finance. Secondly, as Lagarde infers, if central banks have active involvement in the digital finance sector they stand a better chance of retaining control over new financial infrastructures. Though some cryptocurrency proponents may fear the centralized control of governments, the use of CBDCs may serve to increase public confidence in cryptocurrencies overall.
Image credit: IMF
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