Cryptocurrencies became so significant for today’s financial world, that the Chief of International Monetary Fund (IMF) herself sets a discussion called “Money and Payments in the Digital Age”, which gathered representatives from central banks and tech startups.
Christine Lagarde stated that financial technologies such as cryptocurrencies were “shaking the banking system.” She said:
“I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever … that is clearly shaking the system. We don’t want innovation that would shake the system so much that we would lose the stability that is needed.”
Cash or No Cash at All?
According to Lagarde, the state has a role to play in injecting money to the digital economy and it was, therefore, necessary to ‘consider the possibility to issue digital currency’.
Lagarde has said central banks should consider digital currencies:
“Central banks are going to be in a tough place because they are going to have to decide what they do, cash, no cash? Central bank digital currency or not, maybe.”
IMF then tweeted:
— IMF (@IMFNews) April 10, 2019
“The advantage is clear. Your payment would be immediate, safe, cheap and potentially semi-anonymous… And central banks would retain a sure footing in payments.”
Sarah Youngwood from JPMorgan’s consumer and community banking division spoke for the bank. In her first comments, she said:
“I think it’s very important: We love competition. Competition makes us better.”
The theme Youngwood returned to repeatedly was the need for regulation:
“We welcome the competition as long as the activities of the competitors get regulated, and it’s solving customer issues.”
Lagarde hinted that the ‘JPM coin,’ which was launched by Banking Giant JP Morgan and Co. in February 2019 is the proof that digital assets are seeping into the financial system. Moreover, she also expects that the limitations on the use of the JPM coin “to be scaled beyond institutional clients.”
In one of her recent interviews, Lagarde noted:
“The voices that we heard which I thought were really interesting were those of the Regulators and central bank Governors.” She said that they accepted that “this is good and this is helpful and is changing the business model of commercial banks”.
She was always speaking highly of cryptocurrencies saying how they were essential and that well-thought out regulations were important to the industry:
“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. That is why policymakers should keep an open mind and work toward ¬¬an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit.”
“In Crypto We Trust”?
“Saying -in crypto we trust is an effective way of saying – we believe in math”.
He also added that since it is rooted firmly in mathematics, cryptography is a secure means to build decentralized systems. In other words, it’s trustworthy.
Allaire said that if sovereign money went onto the internet in a way where people didn’t need a third party to hold their assets safely and they could trade with anyone on the planet quickly, then “they wouldn’t want to go back.”
Once that happens, everyone will want to use the most stable currencies, which will mean reserve currencies. That, he predicted, will threaten governments that don’t have reserve-status money.
He pointed out that people already trust public infrastructure for sharing information, in the form of messaging and the internet. “An open internet model I think will ultimately be felt by the end users as a superior model,” Allaire said.
Executive Board Member of the European Central Bank (ECB) Benoît Coeurê said he believed banks would not be challenged:
“I am quite convinced that banks will stay. They are all here to stay because we are in an eco-system and we need competition. So it is the spur of competition and the spur of innovation that will help all of us work better and reap the benefits of this innovation.”
However, he added it was important that banks prepare themselves for the future and the possible changes they will have to make.