Speaking at the Singapore Fintech Festival this week International Monetary Fund head, Christine Lagarde, said that governments and central banks should work towards setting up their own digital currencies.
Centralization, Control and Regulation Recommended
She added that a central bank regulated system could become the starting point for rapid expansion into developing economies, reaching some of the world’s poorest without the risks of privately managed blockchains and cryptocurrencies.
The crypto community is likely to eye this approach with caution since the ethos of cryptocurrencies is decentralization from the mainstream banking system. Earlier this week that centralization was clearly demonstrated when the US forced independent European financial services provider, SWIFT, to stop serving Iran, crippling its international banking options. Additionally a bank’s involvement is likely to slow down transactions and increase their costs, to the profit of the bank, again which totally against the purpose of public cryptocurrencies.
Lagarde added that the banks could take over the handling of transactions while the private sector would offer additional services to clients.
“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. In addition, they would offer a more level playing field for competition, and a platform for innovation. Meanwhile your bank or fellow entrepreneurs would have ensured a friendly user experience based on the latest technologies,” She said before adding “Putting it another way. The central bank focuses on its comparative advantage – back-end settlement – and financial institutions and start-ups are free to focus on what they do best – client interface and innovation. This is public-private partnership at its best.”
Blockchain can offer a number of advantages over the existing banking system such as immutability, speed and cost savings, and anonymity. The latter point, however, is a concern for the IMF and central banks who strive to keep a vice-like grip of control over the flows of the world’s finances.
According to the Guardian, Lagarde said that many are still wary of using banks which can profit from transaction data in addition to the transaction fees themselves, as well as being tracked by third parties. Digital cash would be preferable but she reiterated that the central banks should retain control to prevent theft and criminal activity.
To wrap up the IMF boss emphasized that the world is now a digital one stating that the ‘town square’ was now on a screen on our smartphones. “Money itself is changing. We expect it to become more convenient and user friendly, perhaps even less serious looking,” she said. “We expect it to be integrated with social media, readily available for online and person-to-person use, including micropayments. And, of course, we expect it to be cheap and safe, protected against criminals and prying eyes.”
The message was pretty clear, yes we want digitization and cryptocurrencies, but we do not want you, the people, controlling it – leave that to the banks and governments.