The Managing Director and Chairperson of the International Monetary Fund (IMF), Christine Lagarde, has called on central banks around the world to consider issuing digital currencies.
According to Lagarde, the state has a role to play in injecting money to the digital economy and it was, therefore, necessary to ‘consider the possibility to issue digital currency’. Initially reported by the BBC, the IMF head outlined the various benefits that would emerge from such a move in a speech delivered in Singapore.
“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,” said Lagarde.
Citing the example of reserve banks in countries such as Sweden and Canada where central bank digital currencies (CBDCs) were under serious consideration, Lagarde added that such a move would not only make transactions safer but also more common and consequently cheaper.
Per Lagarde, the fact that CBDCs would be the state’s liability as opposed to the existing cryptocurrencies would make such digital currencies more secure. This is because governments will have no choice but to go to the fullest extent possible to ensure their security.
“Private firms may under-invest in security to the extent they do not measure the full cost to society of a payment failure,” Lagarde warned in reference to the existing cryptocurrencies.
Lagarde’s call is interesting given that the financial institution she heads recently expressed misgivings over a plan by the Marshall Islands to issue a national cryptocurrency. As reported by CCN, the IMF argued that the planned state-backed cryptocurrency to be known simply as the Sovereign (SOV) would raise the financial integrity and macroeconomic risks of the Pacific island.
Change of Heart
While she was initially skeptical of cryptocurrencies, Lagarde has since warmed up to the nascent technology. Earlier this year as CCN reported, the IMF head noted that cryptocurrencies were reducing the cost of making financial transactions and thus posed a threat to the traditional financial system.
“The ways in which new technologies are lowering the cost to make financial transactions more accessible, even in very small numbers…I think it’s already massively disruptive,” Lagarde said at the time.
With regards to the negative perception that cryptocurrencies have earned in some quarters due to their anonymous nature, Lagarde has also proved to be level-headed. While acknowledging that there was a need for a degree of regulation in the sector, the IMF head has been careful to warn that this need not go overboard. In a blog post about seven months ago, Lagarde called for cryptocurrency regulations that would minimize risk while encouraging innovation.