The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, recently expressed her positive views on the creation of virtual currencies issued by central banks.
As more and more government institutions investigate the advantages of cryptocurrencies and blockchain technology, so too do they see the potential benefits of having their own state-backed virtual currency. Iran is one such country. They recently announced that they would be introducing their local currency-backed crypto as a means to circumvent U.S. sanctions.
Lagarde Sees the Virtual Light
However, the Managing Director of the International Monetary Fund (IMF) believes that the creation of state-backed virtual currencies can be a positive step, regardless of sanctions. According to The Straits Times, Christine Lagarde recently discussed this at the Singapore Fintech Festival.
She started by stating that most “banks are not exactly rushing to serve poor and rural populations.” This is exactly what crypto and blockchain hope to achieve – financial inclusion for the unbanked population. She also touched on the FinTech revolution and how “it questions the role of the state in providing money.”
She does have a concern that private firms are at risk of doing the opposite of what they hope to achieve, which is to create trust in the cryptocurrency system. Lagarde explained that a security breach or technical issue could be extremely detrimental, saying:
Resilience may also suffer. With only a few links in the payment chain, the system may stop working if one of these links breaks. Think about a cyber attack, a glitch, bankruptcy, or a firm’s withdrawal from the local market.
Creating Collaborations
Lagarde does, however, admit that some governments and even ordinary citizens are wary of decentralized cryptocurrencies. A way to soothe these fears would be to introduce central bank-backed virtual currencies. These institutions would implement certain requirements, such as users providing their identity information. This would be kept private unless authorities suspect that these users are using digital currencies for terror financing activities or to aid in money laundering.
Banks wouldn’t have to do this task alone, though. They could collaborate with private firms in a “public-private partnership.” She added that “banks and other financial firms, including start-ups, could manage the digital currency.” This type of collaboration is also encouraged when regulating virtual currencies. Both regulatory bodies and crypto experts should weigh in on finding the best way forward.
This positive picture of state-backed virtual currencies is a strong contradiction of the IMF’s stance on the Marshall Islands’ plan to do just what Lagarde is encouraging. After the country’s President Heine confirmed that they would be launching their Sovereign (SOV), they received harsh words from the IMF, who advised that the government “seriously reconsider.” However, Heine still seems determined that her government will go ahead with their plans.
Do you think that global governments will heed Lagarde’s advice? Let us know in the comments below!
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