While presenting a new report about virtual currencies at the World Economic Forum, Christine Lagarde, the director of the International Monetary Fund (IMF) speaks for virtual currencies and their underlying technology’s potential to become a powerful tool.
A new report by the International Monetary Fund praised the benefits and innovation that comes with virtual currencies. It calls for a balanced regulatory framework that should be mindful of the innovation at hand.
The report, titled “Virtual Currencies and Beyond: Initial Considerations” can be downloaded here. [PDF]
IMF Managing Director Christine Lagarde presented the report at the World Economic Forum during the panel Transformation of Finance.
Virtual currencies and their underlying technologies can provide faster and cheaper financial services, and can become a powerful tool for deepening financial inclusion in the developing world.
The challenge will be how to reap all these benefits and at the same time prevent illegal uses.
The broadly researched and informative 42-page report provides a wide-reaching overview of virtual currencies, with Bitcoin getting prominence as the chief digital currency of them all.
Money or Currency
The report goes in detail to address the uncertain classification of virtual currencies as money by governments and regulatory authorities, by providing a background of monetary regimes and milestones throughout history. The IMF report also explains the distinction of whether virtual currencies fall within the legal confines of the concepts of currency, or money.
Noting that there is ‘no generally accepted legal definition of currency or money,’ the report notes:
The legal concept currency is associated with the power of the sovereign to establish a legal framework providing for central issuance of banknotes and coins.
The legal concept of money is broader than that of currency and includes banknotes and coins as well as money generated by private parties such as central banks.
Privately-issued ‘money’, the report notes must also ‘generally be denominated in a currency issued by a sovereign authority and must be intended to serve as a generally accepted medium of exchange within that state.’
Praising Distributed Ledgers
The report points to the applications of distributed technology which it says are particularly being adopted among startups in the area of money transfer. It also mentions ‘established financial institutions’ that are jointly working together to develop distributed ledger technologies, such as the R3-led blockchain consortium.
In talking up blockchain technology, the report stated:
- Distributed ledger technology could reduce the cost of international transfers, especially remittances.
- Distributed ledgers can shorten the time required to settle securities transactions.
- Relatedly, distributed ledger technologies can improve back office functions for securities dealers and enhance their transparency.
Lagarde’s comments strike a different chord to her earlier comments made at an industry banking conference in New York in November 2015.
At the time, she addressed bankers’ fears about bitcoin and blockchain technology in stating:
Many of you have heard about not only bitcoins but blockchains and that unbelievable technology that underlies the Bitcoins of this world at the moment, and how incredibly convenient it will be to actually generate trust and identify players and whatever pseudo they decide to use.
And many of you in the industry are actually worried that those technologies are going to massively disrupt the current industry.
Pause for a second, If those new technologies and as long as those new technologies are going to abuse, take advantage of, the yield for anonymity, I think the banking industry has quite a few good days ahead of it as long as it takes ownership of those issues of capital and culture in order to actually restore the trust without which you see no trade no transaction no business can take place.
While Lagarde was talking about the banking industry not disappearing anytime soon the above comments are of a marked contrast to the new report about virtual currencies and blockchain technology and her own comments about the benefits of both.