The outspoken Managing Director of the International Monetary Fund (IMF) envisages a shift towards cryptocurrency.

Christine Lagarde, Managing Director, International Monetary Fund (IMF)

When the Mayor of Seoul announced that his city was developing its own cryptocurrency, a few tearing sounds could be heard as the world picked its ears. Fast forward a month later and you can hear the scrapping of seats against the floor as the world sits upright to Christine Lagarde’s exploration of the benefits of cryptocurrency. The outspoken Managing Director of the International Monetary Fund (IMF) envisages a shift towards cryptocurrency saying:

“There is hope, however, that decentralized applications spurred by crypto-assets will lead to a diversification of the financial landscape, a better balance between centralized and decentralized service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats.”

Having previously explored the drawbacks of crypto-assets and its dark side, especially in facilitating money laundering and the financing of terrorism, the IMF chief has gone on to advise policy makers to be “even-handed” about how they approach these assets;

“A judicious look at crypto-assets should lead us to neither crypto-condemnation nor crypto-euphoria…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.”

Lagarde also acknowledged that with the high number of crypto-assets in circulation, it is inevitable that most will fail, following a similar pattern to the dot-com bubble. Those that survive could have a significant impact on how money is saved, transmitted, invested, and utilized.

On the Benefits of Crypto-Assets

Lagarde lauded the “fast and inexpensive” nature of digital assets, emphasizing that “payment services now make overseas transfers in a matter of hours, not days” and going on to add that “if privately issued crypto-assets remain risky and unstable, there may be demand for central banks to provide digital forms of money.”

She also tipped the blockchain (the underlying technology of crypto-assets — distributed ledger technology) to enable the financial markets function to become more efficient, while self-executing and self-enforcing “smart contracts” could eliminate the need for many intermediaries.

On Immediate Dangers

Regarding financial stability that most traditional institutions have been quick to latch on as the most destruction effect of crypto-asset, Ms. Lagarde revealed that her institution’s preliminary assessment concluded that crypto-assets do not pose an immediate danger given their currently small footprint and limited links to the rest of the financial system. However, Lagarde believes that an even-handed regulatory agenda is required to not stifle the highly innovative crypto space, not one driven by “needless fears.”