14 Nov IMF head advocates for digital currencies
International Monetary Fund (IMF), Managing Director Christine Lagarde told an international conference that central governments around the world should consider the value of issuing digital currencies.
The IMF head said regulated digital currencies could help make digital transactions safer, faster and less expensive.
“I believe we should consider the possibility to issue digital currency,” Ms Lagarde said in a speech at the Singapore Fintech Festival. “There may be a role for the state to supply money to the digital economy.”
Safer, cheaper, payments
Lagarde said numerous central banks, including Canada, China, Sweden, and Uruguay are all studying potential roles for a national digital currency.
She said virtual currencies could be issued by a central bank and would be a liability and responsibility of the state in the same way that cash now functions.
With regulatory oversight, digital transactions would become safer, cheaper and more common.
“The advantage is clear. Your payment would be immediate, safe, cheap and potentially semi-anonymous… And central banks would retain a sure footing in payments,” Lagarde told conference attendees.
A cashless world on the horizon
She said it is not unusual in Scandinavia to see signs saying, “Cash not accepted.”
Banks are now looking at ways to deliver new forms of money to meet growing consumer demand.
“Think of the new specialized payment providers that offer e-money—from AliPay and WeChat in China, to PayTM in India, to M-Pesa in Kenya. These forms of money are designed with the digital economy in mind. They respond to what people demand, and what the economy requires,” Lagarde said.
The case for digital currencies
Lagarde said the regulation of digital currencies is an important pillar of trust in every economy. She pointed to a new IMF paper that examines the role of central digital currencies.
She said a state-sponsored digital currency could meet a number of public policy goals, such as financial inclusion, and security and consumer protection; and to provide what the private sector cannot: privacy in payments.
According to Lagarde, there are potential downsides to digital currencies as well. “The obvious ones are risks to financial integrity and financial stability. But I would also like to highlight risks of stifling innovation—the last thing you want.”
Promoting innovation, public-private partnership
The IMF head is certain financial integrity and stability can be managed within a national digital currency framework. The existing financial system works well, but digital currencies could provide efficiencies, cost savings and strengthen its integrity.
Digital currencies needn’t destabilize the banking system either she says. One possibility is a partnership between central banks and private sector banks according to Lagarde:
“What if, instead, central banks entered a partnership with the private sector—banks and other financial institutions—and said: you interface with the customer, you store their wealth, you offer interest, advice, loans. But when it comes time to transact, we take over. This partnership could take various forms. Banks and other financial firms, including startups, could manage the digital currency. Much like banks which currently distribute cash.”
With a central bank focusing on backend settlement of transactions, financial institutions and startups can focus on what they do best – customer interface and innovation.
Lagarde is passionate about the possibilities of digital currencies. She has preached this new potential for several years, but the banking establishment remains a hard sell. As demand and innovation continue to grow, let’s hope her vision prevails.