The June 2016 edition of the IMF's quarterly magazine, Finance & Development, features a very pro-blockchain article called “The internet of Trust,” which explains Bitcoin in great detail, expanding on the benefits of the blockchain impressively.
Reminiscent of The Economist's iconic twin articles from October last year titled “The Trust Machine” and “The great chain of being sure about things,” this new article makes perfectly clear the benefits and disruptive properties of an immutable ledger system.
This time, however, the article is from the IMF itself. Andreas Adriano, the Senior Communications Officer in the IMF’s Communications Department, and Hunter Monroe, a Senior Economist in the IMF’s Monetary and Capital Markets Department, together wrote the four-page comprehensive report.
“With Bitcoin, everyone on the Internet can validate and record transactions in their own copy of the ledger.” ... “Some predict that this capability to disintermediate any trusted third party will be the most disruptive technology since the Internet. ”
- Adriano and Monroe
Being careful to cover the benefits of the technology without ignoring the highly disruptive nature of it to their industry required a lot of care. The duo effectively explained what the technology does without getting too technical, and all of the damaging implications that blockchain could have for their own industry were fully exposed.
"Setting standards will be crucial here. It is typical of a new innovation cycle that different companies come up with different ways to do something, leading to a patchwork of technological approaches. Some worry that this could undo years of effort to integrate the financial industry globally. "
- Adriano and Monroe
Throughout the article, the authors referred primarily to Bitcoin itself, and had a good grasp on what makes bitcoin's token valuable. “Completing the block for a period requires some computational work,” they explained, “with a reward in bitcoin—so the people competing to complete blocks are called “miners.” Thus bitcoin, by combining a peer-to-peer approach with cryptographic security, became the first successful digital currency, after several decades of failures,” the authors concluded, showing why bitcoin works as a currency, not just a blockchain.
Image from the IMF magazine article depicting a blockchain replacing banks and even the central bank too.
The authors then made the case that suggests blockchains will be beneficiary and bitcoin will not likely become a competitor to banks. “Created to avoid banks,” the article's subheading reads, “bitcoin’s blockchain technology may end up helping them.” Several interviews from executives were referenced in the article, all with the opinion that banks are in no danger from bitcoin.
“Some are asking whether bitcoin and other blockchain applications could eventually undermine monetary policy and financial stability—but the consensus is that there is no immediate risk.”
- Adriano and Monroe
Finance & Development, the half-century-old magazine with global distribution that the report is featured in was produced and published by the IMF directly, and it primarily explores issues of monetary policy and economic development. For the quarterly magazine to feature an article about Bitcoin and blockchains makes evident their importance to international monetary policy.
The IMF itself has already hinted at the importance of digital currencies before. In January, IMF Director Christine Lagarde made a presentation titled “Virtual Currencies and Beyond: Initial Considerations,” at the World Economic Forum in Davos, Switzerland. The invitation-only annual meeting brings together world leaders from the 189 member countries, and CEOs from its 1,000 member firms, as well as selected representatives from academia, NGOs, religious leaders, and the media.
Lagarde presented her paper during a panel called “Transformation of Finance.” Her speech and the accompanying document provided an overview of virtual currencies, how they work, and how they fit into monetary systems, both domestically and internationally.
“Virtual currencies and their underlying technologies can provide faster and cheaper financial services, and can become a powerful tool for deepening financial inclusion in the developing world.”
- Christine Lagarde, IMF Managing Director
Although most of her report dealt with proposed regulation and policy changes that would be needed to accommodate digital currencies, madame Lagarde did not shy away from them altogether, taking the time to point out examples of their benefits.
Remittances, land and credit registries, payment and settlement infrastructure for transactions in existing currencies, securities, and other assets that would all be improved with the use of blockchains were among many of the examples she listed. “Virtual currencies' technologies hold promise of greater financial inclusion and lower remittances costs,” Lagarde stated in her speech.
The IMF isn't the only senior financial institution talking about blockchain adoption lately. Federal Reserve Chairman Janet Yellen recently held a fintech event and encouraged her fellow central bankers to accelerate their studies of new financial technologies, specifically mentioning bitcoin, the blockchain, and other distributed ledgers.
Jens Weidmann, the President of the Deutsche Bundesbank and Chairman of the board of Directors at the BIS commented on bitcoin during Bundesbank's annual report this spring too. The President of the Deutsche Bundesbank noted that blockchains are a 'key innovation.'
“Blockchain technology is seen as the key innovation in this regard, allowing as it does values to be transferred cheaply and comparatively anonymously, while bypassing centralised authorities such as banks, card companies and clearing houses.”
- Jens Weidmann, Chairman of the Board of Directors for the Bank for International Settlements
He doesn't sound as enthusiastic about Bitcoin, however, calling it and other digital currencies a 'challenge.' “I can also well imagine that it will soon be possible to use digital currencies, such as bitcoins, which are based on this technology,” he continued, “to trade in financial products, such as shares, bonds or derivatives in decentralised systems. This would, of course, present a challenge for the existing payment and settlement systems.”
There can no longer be any doubt that the top organizations and offices in the world that Bitcoin could disrupt are fully aware of it and how it works. However, with the warm reception from the IMF, and overall positive opinion of blockchains industry-wide, it appears that Bitcoin and other cryptocurrencies have been given a pass and granted more time to grow before resistance is formed.