Digital assets “shaking the system” – IMF head Christine Lagarde

In a recent interview with CNBC, IMF head Christine Lagarde said digital assets are “shaking the system”, and explained that the incumbents of the financial system — the commercial banks, have already begun to change their business models in response to the mounting pressures of fintech and cryptocurrency.

This pressure, Lagarde suggests, has prompted a shift in the attitudes of big banks, who are now racing to respond to the disruption. Several examples were mentioned, including an anonymous “systemic bank”, that sounds rather like JP Morgan, launching a digital coin to be piloted with institutional clients, and eventually scaled to consumer use.

Lagarde also credits crypto and fintech with catalysing the development of TIPS — the pan-eurozone payment service which the European Central Bank rolled out late last year. This new settlement system is designed to allow consumers and businesses across the euro area to send and receive money instantaneously, putting big banks in the realms of Paypal and other tech giants.

But despite claiming that she welcomes the transparency, cost-saving, and efficiency that innovation can bring, more decentralized cryptocurrency projects like bitcoin seem to have faded from Lagarde’s memory. “Anything that is using the distributed ledger technology, whether you call it crypto-assets currencies or whatever… and it’s far from the bitcoin that we used to talk about a year ago that is shaking the system,” she said.

”Trust and stability”, are the two values that must be prioritised, she continued, saying that “we don’t want innovation that would shake the system so much that we would lose the stability that is needed.”

The way to ensure this stability, Lagarde suggests, is through regulation, which is necessary to hold companies accountable and — ironically — to ensure the “trust” — that blockchain promises to remove the need for. “They will have to be held accountable so that they can be fully trusted” she said.

But regulating this new frontier requires a fresh approach, which explains why the IMF and World Bank are now working together to educate themselves by developing their own blockchain-based token — “Learning Coin”.

Education for the incumbents

The two biggest global monetary policy makers – the IMF and World Bank – will now have their own private blockchain.

The crypto token will reportedly help both organizations get to grips with blockchain by building and using a cryptocurrency, although it is likely to resemble JPMCoin more than Bitcoin.

This will address what the announcement identified as a "growing knowledge gap" between the incumbents — the commercial banks, legislators and economists, and the developers, blockchain specialists, and users of crypto world: “The development of crypto-assets and distributed ledger technology is evolving rapidly, as is the amount of information (both neutral and vested) surrounding it. This is forcing central banks, regulators and financial institutions to recognize a growing knowledge gap between the legislators, policymakers, economists and the technology. This project begins to bridge that gap and form a strong knowledge base of the technology among IMF and World Bank staff.”

As a model digital economy, tokens will have no real monetary value, but are designed to foster an understanding of crypto. Staff will be able to earn these tokens by achieving educational goals, and will be incentivised to do so by the prospect of exchanging them for internal rewards. This is to be coordinated by a central app — ‘Learning Coin’ — which brings together the institutions educational content and crypto-related research

But given that the token remains under the control of just two organisations, it is more likely to be educating its users on the corporate coins and blockchain banking initiatives that Lagarde suggests are the main disruptors, rather than bitcoin and more grassroots cryptocurrencies.

In previous speeches, Lagarde has encouraged the exploration of central bank digital currencies (CBDCs), and spoke positively of the potential for blockchain, but also called for a crackdown on bitcoin by suggesting authorities “fight fire with fire”.

Regardless of the views of the IMF, a poll tweeted by the organisation showed that the majority of people have more faith in the future of crypto. The poll, which asked almost 40,000 people how they expected to be paying for lunch in five years, revealed that 56 percent believed it would be cryptocurrency, with only 27 percent choosing ‘mobile phone’, nine percent ‘bank card’, and eight percent ‘cash’.