Christine Lagarde, head of the International Monetary Fund, has used a speech at the Singapore Fintech Festival to advocate that states across the world should consider issuing digital currencies.

The IMF hasn’t always been the biggest fan of crypto. In a report entitled the World Economic Outlook released last month, they cited the rise of cryptocurrency as among “Challenges to Steady Growth” globally. Lagarde has herself been critical of cryptocurrencies, warning of bitcoin’s anonymity making it ideal for use in funding criminal and terrorist enterprises. That old chestnut…

It seems she has now, at least partially changed her tune however, as during a speech in Singapore at the country’s Fintech Festival, she appeared to advocate the creation of digital currencies by national banks.

“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.”

Whilst this may excite some for the crypto cause however, it is notable that she used the term “digital currency” as opposed to cryptocurrency, indicating that the usual attributes one may associate with cryptos like bitcoin – decentralisation, fixed supply and even blockchain tech – may not necessarily be present in her vision of how these state-backed cryptos might work.

In the rest of her speech she went on to outline the pros and the cons of state-backed virtual currencies.

Financial Inclusion, Consumer Protection and Privacy

She highlighted financial inclusion, consumer protection and privacy as cases for state-backed digital currency.

Financial inclusion would come in the form of those without access to traditional banking infrastructure being able to be reached just through their smartphone. In an interesting point, Lagarde cited consumer protection and privacy coming in the form of the challenge state-backed virtual currencies would pose to payments providers, an extremely small oligarchy of which – Visa, Mastercard – have a monopoly on providing transaction infrastructure. As a result, Lagarde explains they have an extremely large amount of user-data which would be extremely valuable to third parties.

Financial Integrity and Stability

She stated however that digital currencies still present a challenge to financial integrity and stability and that a balance between privacy and financial integrity would have to be struck. She also stated rather shrewdly that a ready-made government-provided solution could serve as a block to innovation from the private sector.

In solving this she proposed a partnership between public and private organisations with each playing to their strengths: governments creating the infrastructure under the hood, and the private sector handling the interface and innovation.

Where Does This Leave Us?

Whilst such a proposition is interesting, it’s hard to see where the IMF’s vision sets it with regard to initiatives already established. Would state-backed cryptos attempt to depose decentralised ones like bitcoin? What does this mean regarding the IMF’s stance on traditional cryptocurrencies? How would retail banks fit in to this vision?

Many states such as Sweden, Russia and the UK are already investigating and working on creating their own digital currencies. Furthermore, as was pointed out on twitter, the majority of money is digital these days, with digital transactions, i.e. those not done with cash, accounting for up to 96% of the total, by some estimations. Saifedean Ammous, a cryptocurrency economist also suggested his view that a state-backed digital currency would push more people toward traditional cryptos like bitcoin, because a government would have too much control over the money supply.

Silly. Central Bank currency is already mostly digital. Making it entirety digital just increases gov't control over it, & incentives adoption of hard sovereign digital cash: Bitcoin. https://t.co/jG4q00euyT — Saifedean Ammous (@saifedean) November 14, 2018

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