Christine Lagarde, managing director of the International Monetary Fund, published a blog post this week endorsing cryptocurrency's potential to reshape the financial system. She wrote that digital as
Christine Lagarde, managing director of the International Monetary Fund, published a blog post this week endorsing cryptocurrency's potential to reshape the financial system. She wrote that digital assets enable fast, inexpensive transactions, and the underlying technology called blockchains could make financial markets operate more efficiently. "The underlying technology of crypto-assets – blockchain technology, or DLT – could help financial markets function more efficiently," she wrote.
Bitcoin's price climbed above $8,000 in the hours following her post, offering a reprieve to investors who had watched the cryptocurrency hemorrhage value since January. The opening quarter of 2018 marked the worst three-month stretch in bitcoin's history, with the price declining 50 percent from its January peak. By mid-April, the currency surged $1,000 in 30 minutes, and those holding bitcoin through the decline had reason to celebrate.
Lagarde drew a parallel to the dot-com era. "Just as a few technologies that emerged from the dot-com era have transformed our lives, the crypto-assets that survive could have a significant impact on how we save, invest, and pay our bills," she said. Yet she stopped short of predicting that cryptocurrency would displace traditional banking. Banks and brokers will remain necessary intermediaries, she argued. Instead, she envisioned a financial world where decentralized and centralized services operate alongside one another and reinforce each other's strengths.
"There is hope, however, that decentralised applications spurred by crypto-assets will lead to a diversification of the financial landscape, a better balance between centralised and decentralised service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats," she said.
Lagarde called for regulators to craft frameworks that manage genuine risks while allowing a nascent sector room to grow. Policymakers should approach crypto with an open mind, weighing real threats against unfounded fears. "Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears," she said.
She also stressed that developing a global regulatory consensus on crypto's future role matters before the technology can transform finance. Cryptocurrencies need to earn the trust of consumers and officials, she wrote. Without that confidence, the sector cannot advance.
Lagarde's latest post builds on an earlier one published in March, where she outlined the darker dimensions of digital assets. She flagged then that anonymity, the feature making crypto attractive, also enables money laundering and terrorist financing.
