The head of the International Monetary Fund says cryptocurrency could have a “significant” impact on the way we save, invest and pay our bills – and eliminate the need for certain financial intermediaries altogether.
“Banks and other financial institutions will face challenges to their business models, should there be a large-scale shift away from government-issued currencies toward crypto-assets,” says Christine Lagarde in a new blog post.
If the cryptocurrency market remains volatile, Lagarde says banks may also decide its in their best interests to issue their own forms of digital money. Although Lagarde thinks many cryptocurrencies won’t last in the long run, those that do survive have the power to “enable fast and inexpensive financial transactions, while offering some of the convenience of cash.”
Because cryptocurrencies could have a transformational effect on the world economy, Lagarde stresses the need for a global consensus on the new technology.
“What are the implications for financial stability? Our preliminary assessment is that, given their still-small footprint and limited links to the rest of the financial system, crypto-assets do not pose an immediate danger. Even so, regulators should remain vigilant: 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…
Before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities. An important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play. Because crypto-assets know no boundaries, international cooperation will be essential.”
Lagarde says governments and financial institutions should stay on top of rapid developments in cryptocurrency markets and technology to avoid potential pitfalls in the era of digital currencies. She’s recommending an even-handed approach that aims to guard against risks without stifling innovation.