The International Monetary Fund on Wednesday said that the possibility of issuing a digital currency and the role of the central bank in in issuing such a currency should be considered by all countries .
“With appropriate design, there may be a role for the state to actually supply money to the digital economy,” said Christine Lagarde, the managing director of IMF.
Addressing the Singapore Fintech Festival, on Winds of Change: The Case for New Digital Currency, she said various central banks around the world are seriously considering these ideas, including Canada, China, Sweden, and Uruguay. They are embracing change and new thinking as is the IMF.
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“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 said.
This currency could satisfy public policy goals, such as financial inclusion, and security and consumer protection; and to provide what the private sector cannot: privacy in payments.
The key, she said is to harness the benefits while managing the risks by:
- First, frame the issue in terms of the changing nature of money and the fintech revolution.
- Second, evaluate the role for central banks in this new financial landscape—especially in providing digital currency.
- Third, look at some downsides, and consider how they can be minimized.
Changing nature of money
The big issue on the table today is the changing nature of money, she said. The fintech revolution questions the two forms of money – coins and commercial bank deposits. And it questions the role of the state in providing money.
“A new wind is blowing, that of digitalization. In this new world, we meet anywhere, any time. The town square is back—virtually, on our smartphones. We exchange information, services, even emojis, instantly… peer to peer, person to person. We float through a world of information, where data is the ‘new gold’- despite growing concerns over privacy, and cyber-security. A world in which millennials are reinventing how our economy works, phone in hand. And this is key: money itself is changing. We expect it to become more convenient and user-friendly, perhaps even less serious-looking.”
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“We expect it to be integrated with social media, readily available for online and person-to-person use, including micro-payments. And of course, we expect it to be cheap and safe, protected against criminals and prying eyes.”
New specialized payment providers offer e-money—from AliPay and WeChat in China, to PayTM in India, to M-Pesa in Kenya. These forms of money are designed with the digital economy in mind. They respond to what people demand, and what the economy requires, she said.
Even cryptocurrencies such as Bitcoin, Ethereum, and Ripple are vying for a spot in the cashless world, constantly reinventing themselves in the hope of offering more stable value, and quicker, cheaper settlement.
The IMF chief also highlighted the potential downsides of digital currency. “The obvious ones are risks to financial integrity and financial stability. But I would also like to highlight risks of stifling innovation—the last thing you want.”
While the case for digital currency is not universal, we should investigate it further, seriously, carefully, and creatively, she said adding the the case is about change—being open to change, embracing change, shaping change.
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