The IMF Managing Director, Christine Lagarde spoke about cryptocurrencies and blockchain technology, during her speech at the Singapore Fintech Festival.
The Managing Director stressed on three topics during her speech, including issues regarding the changing nature of money and the revolution of Fintech, role of central banks in the new financial landscape particularly in digital currency, and the disadvantages related to it and the solutions which can effectively minimize them.
Christine Lagarde started off by speaking about the changing nature of money and fintech. She stated that at one point in time, transactions were settled with the exchange of coins, and all that mattered was whether the coin was valid. Nonetheless, as commerce grew, carrying coins became a hassle and as a solution Chinese Paper Money was introduced in the 9th century, she said. However, this was not enough; as innovation grew, bills of exchange came into existence.
She went on to say:
“Suddenly, it mattered whom you dealt with […] Trust became essential – and the state became the guarantor of that trust, by offering liquidity backstops, and supervision. Why is this brief tour of history relevant? Because the fintech revolution questions the two forms of money we just discussed – coins and commercial bank deposits, And it questions the role of the state in providing money”
The Managing Director stated that now, millennials, reinventing how the economy works with their phones and that data is the new gold. With this changing time, money is expected to be more convenient, user-friendly, and integrated with social media. It should be ready for micro-payments, online payments, while being cheap and secure, she said.
Lagarde continued to say that the demand for cash is decreasing, quoting the example of PayTM, payment processor app used in India and M-Pesa, another payment processor which is commonly used in Kenya, stating that they responded to people’s demand and economy’s requirements.
“Even cryptocurrencies such as Bitcoin, Ethereum, and Ripple are vying for a spot in the cashless world, constantly reinvesting themselves in the hope of offering more stable value and quicker cheaper settlement.”
Furthermore, the Managing Director stated that all the central banks should issue their own digital currency, a state back cryptocurrency which is available for the retails payments. She said:
“True, your deposits in commercial banks are already digital. But a digital currency would be a liability of the state, like cash today, not a private firm. This is not science fiction. Various central banks around the world are seriously considering these ideas, including Canada, China, Sweden, and Uruguay. They are embracing change and new thinking – as indeed is the IMF.”
Lagarde further stated:
“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. This currency could satisfy public policy goals, such as (i) financial inclusion, and (ii) security and consumer protection; and to provide what the private sector cannot: (iii) privacy in payments.”