“We Need An Even-Handed Regulatory Framework For Cryptocurrencies,” Says IMF Chief Lagardebr>
Christine Lagarde, the head of the International Monetary Fund (IMF), said that cryptocurrencies like bitcoin could enable fast and inexpensive transactions.
In her official blog on the IMF’s website, Lagarde explained the global benefits of bitcoin and other cryptocurrencies, saying that cryptocurrencies offer some of the convenience of cash.
“Just as a few technologies that emerged from the dot-com era have transformed our lives, the crypto-assets that survive could have a significant impact on how we save, invest and pay our bills,” she said.
While the FinTech revolution will not eliminate the need for trusted intermediaries, such as brokers and bankers, Lagarde believes the decentralized applications spurred by cryptocurrencies will lead to a diversification of the financial landscape.
She also said that cryptocurrencies do not pose an immediate danger to the financial stability due to their still-small footprint and limited links to the rest of the financial system. However, she said financial regulators should remain vigilant because cryptocurrencies have the potential to magnify the risks of highly leveraged trading. Crypto-assets also have the potential to increase the transmission of economic shocks should they become more integrated into mainstream financial products.
“Banks and other financial institutions will face challenges to their business models, should there be a large-scale shift away from government-issued currencies toward crypto-assets,” she said. “Regulators might find it harder to ensure the stability of a more diffuse and decentralized financial system. Central banks might have more trouble acting as the lender of last resort in case of a crisis.”
Legarde called on regulators to keep an open mind and work toward an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit.
“Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears,” she said. “That is why we need an even-handed regulatory agenda, one that protects against risks without discouraging innovation. A clear-eyed approach can help us harness the gains and avoid the pitfalls of the new crypto-assets landscape.”