IMF Chair Calls For More Action on State-Backed Cryptocurrencies

IMF International Monetary Fund Christine Lagarde state-backed cryptocurrencies

The managing director and chairwoman of the International Monetary Fund has called for central banks to accelerate their exploration of state-backed cryptocurrencies, as a response to the declining global demand for cash.

In a speech delivered at this week’s Singapore Fintech Festival, Christine Lagarde said central banks and governments should be more actively considering digital currencies, and the state’s involvement in the wider digital economy.

“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.”

Lagarde went on to describe established cryptocurrencies such as bitcoin and ethereum as “vying for a spot in the cashless world, constantly reinventing themselves in the hope of offering more stable value, and quicker, cheaper settlement.”

Central bank digital currencies, or CBDCs, are already under active consideration at a number of central banks worldwide, including China, Sweden, Uruguay and Canada.

Reports emerging this week suggest Iran might be following a similar path, in considering plans for a state-backed cryptocurrency for the purposes of transacting outside of global payment systems, following the recently imposed U.S.-led sanctions on the country.

The model sees central banks issue a cryptocurrency pegged to local fiat currency and backed by physical reserves to facilitate fast, efficient transactions on the blockchain on a currency-stable basis.

Her calls come at a time of increasing interest in state-backed currencies and stablecoins pegged to international currencies like the dollar.

As an alternative to floating cryptocurrencies such as bitcoin, which are inherently volatile, these so-called stablecoins would enable larger transactions to be settled quickly and cheaply on the blockchain without exposure to the fluctuations of volatile cryptocurrency markets.

In her speech, Lagarde highlighted that at the moment, technical limitations mean public cryptocurrencies are not yet sufficient for large-scale international settlement, an issue that could be resolved with CBDCs.

While state-backed cryptocurrencies would retain some of the privacy elements of cryptocurrencies like bitcoin, Lagarde said that state involvement would ensure “anti-money laundering and terrorist financing controls would nevertheless run in the background.”

“This setup would be good for users, bad for criminals, and better for the state, relative to cash. Of course, challenges remain. My goal, at this point, is to encourage exploration.”