Virtual currency could, indeed, be the way of the future. At least that’s what the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, told an audience in London last week.
Lagarde spoke at length on the topic during a Bank of England conference. The bank was holding the event in celebration of its 20th year of operational independence over monetary policy. Rather than focusing on the past 20 years, however, Lagarde’s presentation focused on what is going to happen in the banking sector in the 20 years to come.
Her presentation was centered on how fintech will evolve central banking institutions over the next generation or so – touching on artificial intelligence, new systems of financial intermediation, and virtual currencies.
The IMF head noted that, at least for the time being, things like Bitcoin don’t pose much of a threat to the current order of standard currencies and central banks. This is because they are too risky, too unpredictable, and because the supporting technologies aren’t scalable yet. According to Lagarde, a lot of virtual currencies aren’t transparent enough for regulators – and some have been victimized by hackers.
Lagarde refers to all of these issues as “technological challenges” that we could resolve as time goes on.
“Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays,” Lagarde commented. “So I think it may not be wise to dismiss virtual currencies.”
Possible cryptocurrency routes
She pointed to an example of countries that lack strong institutions and stability in their national currency. In these cases, we may see virtual currency use grow rather than adoption of the US dollar. Lagarde referred to this phenomenon as “dollarization 2.0.”
According to Lagarde, citizens of these countries might prefer virtual currency over paper money. This is because it might soon be both easier and more secure – particularly in remote areas. There are many ways that cryptocurrencies could be regulated, she says, pointing to ideas like transparent issuance rules and credible monitoring methods.
“The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve,” Lagarde added.
Time will tell how our current financial institutions will be able to handle the growing popularity of virtual money. At least the IMF appears to have an open mind.
Speech by Christine Lagarde, IMF.org
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