The Managing Director of the International Monetary Fund (IMF) has urged players in the financial sector to embrace the emergence of cryptocurrencies (virtual currencies), suggesting that, it could transform the way people save and invest.
She said just as few technologies that emerged from the dot-com era have transformed lives, the crypto assets that survive could have a significant impact on how people save, invest and pay their bills.
“That is why policymakers should keep an open mind and work toward an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit,” Ms Christine Lagarde has said during the 2018 Spring Meeting of the IMF and the World Bank Group in Washington DC, USA.
Cryptocurrencies, or virtual currencies, are a new class of digital assets powered by blockchains, which made their name underpinning networks like Bitcoin, Pay Diamond and Ethereum.
There are currently more than 1,600 crypto-assets in circulation, IMF Boss, Christine Lagarde disclosed, adding that, “given their still-small footprint and limited links to the rest of the financial system, crypto-assets do not pose an immediate danger.”
Despite the assurance, she said regulators should remain vigilant as crypto-assets have the potential to magnify the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated into mainstream financial products.
She further warned that banks and other financial institutions will face challenges to their business models, should there be a large-scale shift away from government-issued currencies toward crypto-assets.
“Regulators might find it harder to ensure the stability of a more diffuse and decentralized financial system. Central banks might have more trouble acting as the lender of last resort in case of a crisis,” Ms. Lagarde warned.
Even-handed approach
Before crypto-assets can transform financial activity in a meaningful and lasting way, Ms. Lagarde said, they must earn the confidence and support of consumers and authorities.
“An important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play. Because crypto-assets know no boundaries, international cooperation will be essential,” she explained.
She said the IMF, with a membership of 189 countries, could play a key role by offering advice and serving as a forum for discussion and collaboration in the development of a consistent regulatory approach.
“For this to happen, we must keep abreast of rapid developments in markets and technologies. We must act quickly to close the knowledge gaps that inhibit the effective monitoring of crypto-assets.”
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