Cryptocurrency regulations have been a hot topic in recent months. Lawmakers’ opinions have ranged from banning crypto assets altogether — claiming they pose a risk to the global financial system — to leaving this new market entirely unregulated.
Earlier this week, International Monetary Fund (IMF) chief Christine Lagarde contributed to the discussion by suggesting an “even-handed approach” to regulating cryptographic assets and highlighted their potential benefits for consumers in a blog post on the IMF website.
Lagarde, who had previously voiced her positive opinion about the benefits of digital currencies at a speech at the Bank of England in September 2017, stated that “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”.
Lagarde’s thoughts on the benefits of cryptocurrencies
The IMF managing director believes that the potential of cryptocurrencies for offering a fast and inexpensive means of making payments and international money transfers will be a great benefit to consumers. While she considers privately-issued digital currencies to be risky, she believes there may be demand for central bank-issued digital currencies in the future that offer similar consumer benefits.
Furthermore, Lagarde states that cryptocurrencies’ underlying technology - the blockchain - could be implemented into the global financial system to make it more efficient and to reduce the reliance on intermediaries. She cites the Australian Stock Exchange’s efforts to put its clearing and settlement system onto the blockchain as an example of how distributed ledger technology (DLT) can improve the current status quo in the financial markets.
Lagarde also believes that DLT provides an excellent solution for digital record keeping for sensitive information such as medical data and property rights.
Crypto 'not a threat to the financial system'
While Lagarde praises the benefits of cryptocurrencies and their underlying technology, she also doesn't view their disruptive power as a threat to the existing financial system as the $350 billion asset class is too small and not interlinked enough with the global financial system to be a threat at this time.
Instead, she believes the future of a more technologically-driven financial industry will be composed of a mix between centralized and decentralized financial services providers.
However, she does urge banks to reassess their current business models should the crypto asset market grow substantially in size and consumers shift away from government-issued currency to privately-issued decentralized digital currencies.
She also urges financial regulators to stay vigilant as “crypto assets have the potential to magnify the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated into mainstream financial products”.
The most important take away from Lagarde’s view on digital currencies, however, is that she suggests an “even-handed approach” to global crypto asset regulation that provides consumers and markets with adequate protection while not stifling financial innovation. She also insists that the international community needs to come together to agree on a global regulatory framework for this new digital asset class “because crypto-assets know no boundaries, [hence] international cooperation will be essential”.
The head of the IMF concludes that “a clear-eyed approach can help us harness the gains and avoid the pitfalls of the new crypto assets landscape.” Her words should give some peace of mind to crypto investors who are concerned that overzealous global regulations could potentially stump the growth of the cryptographic asset market.