IMF Speaks Out on Crypto Assets

Only about a month ago Christine Lagarde, Head of the International Monetary Fund, called cryptocurrencies a potentially major new vehicle for money laundering and the financing of terrorism. Now she has come up with another story in the official IMF blog, looking at the bright side of cryptocurrencies.

Ms. Lagarde urges policymakers to keep an open mind and allow the creative process to bear fruit while working toward an even-handed regulatory framework to minimize risks. 

In her new post, she identifies several advantages of the digital assets, such as their potential to enable fast and inexpensive financial transactions. “If privately issued crypto-assets remain risky and unstable, there may be demand for central banks to provide digital forms of money,” she adds. 

In Ms. Lagarde’s opinion, the distributed ledger technology could help financial markets function more efficiently by eliminating the need for intermediaries. Also, she singles out that the DLT can be used to securely store important records, as well as help secure property rights, increase market confidence and promote investment in developing economies.

As for the future of financial institutions, such as brokers and bankers, Ms. Lagarde does not think that the fintech revolution will eliminate the need for these intermediaries, while the appearance of cryptocurrencies could lead to “a better balance between centralized and de-centralized service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats”.   

Ms. Lagarde points out that despite the current small footprint of cryptocurrencies, regulators should remain vigilant, as crypto assets can magnify the risks of highly leveraged trading and increase the transmission of economic shocks should they become more integrated into mainstream financial products. In addition, they could pose challenges to traditional banking business models.

Ms. Lagarde says it is very important to reach a consensus within the global regulatory community on the role crypto-assets should play, and the IMF could play a key role in the process by offering advice and serving as a forum for discussion and collaboration in the development of a consistent regulatory approach.