IMF State-Backed Cryptocurrency Push
Cryptocurrencies might have received their biggest endorsement to date. The head of International Monetary Fund (IMF) believes it is time central banks started exploring the possibility of state-backed digital currencies. Christine Lagarde remarks come on the heels of the agency releasing a white paper titled Winds of Change. The report makes the case on the need for cryptocurrencies. According to the IMF chief, cryptocurrencies have the potential to improve business conditions in remote areas. Cryptocurrencies are becoming increasingly popular in areas where traditional currencies are a lesser quality option. Private sectors are doing little to connect marginalized communities to monetary systems. For that reason, calls for increased usage of cryptocurrency continues to gather pace seen as the ultimate solution to the underlying issue.
“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. We know that banks are not exactly rushing to serve poor and rural populations,” Lagarde in a statement.
According to Lagarde, a state-backed cryptocurrency could help level the playing field with traditional payment systems. Such digital currencies could also go a long way in curbing monopolies that came into being as a result of economies of scale. This is not the first time that Lagarde expressed confidence in cryptocurrencies. In April, Lagarde said virtual currencies have the potential to reduce transaction costs significantly. She also expects such currencies to help speed up cross-border payments. Finally, Lagarde also expects the underlying blockchain technology to help financial market efficiency.
Mixed Reaction to Lagarde
The idea of state banked cryptocurrency is not new. Venezuela has already launched its own cryptocurrency – dubbed El Petro. The Republic of Iran is also in the process of launching a similar cryptocurrency. The push to develop state-backed cryptocurrency is due to international financial sanctions. Bank of Canada economist Mohammad Davoodalhosseini has also touted the need for a state-backed cryptocurrency. According to the economist, such a currency would increase consumption by 0.64% in Canada and by 1.6% in the U.S.
Even as other countries continue to tout the need for a state-backed cryptocurrency, the same is not the case in England. Bank of England has already rebuffed calls for such a currency. In a May white paper, the regulator published potential effects of such a tool on balance sheets of commercial banks. The Kingdom’s financial regulator has already reiterated that it does not have any immediate plans for such a digital currency.
Cryptocurrencies remain under increased pressure and scrutiny in some countries. China has already imposed bans on the new forms of money. Some countries have imposed stringent regulation designed to stifle widespread adoption. Most countries remain on the fence on concerns that people could use cryptocurrencies to fuel illegal activities. The fact that cryptocurrency facilitates anonymous transactions is already fueling concerns that people could use them for money laundering. Accordingly, regulators have also raised alarm bells of people using them to finance terrorist activities.