The managing director and chairwoman of the International Monetary Fund or IMF, named Christine Lagarde, encouraged the exploration of central bank digital currencies or CBDCs in the light of decreasing the demand for cash, as well as rising preference for digital money.

The possibility to issue digital currency should be considered

In one prepared for the Singapore Fintech Festival from Wednesday, she said she believes they should take in option the possibility to issue digital currency. There may also be a role for the state to supply money to the digital economy.

Central banks all over the world are seriously considering the issuance of digital currency, which includes China, Canada, Sweden, as well as Uruguay. Christine said that these countries are embracing change and new thinking, as indeed is the IMF.

Lagarde also noted that some of the largest cryptocurrencies such as Bitcoin, XRP or Ethereum are also vying for a place in the no- cash world, continuously reinventing themselves, hoping to offer more stable value and quicker or cheaper settlement.

But, at the same time, the IMF has once again criticized the view that public cryptocurrencies offer an alternative to CBDCs.

Cryptocurrencies struggle to satisfy the function of money

In another report which was titled “Casting Light on Central Bank Digital Currency” and which was also revealed Wednesday alongside the speech of Lagarde, the IMF said cryptocurrencies are distinct along a lot of dimensions, and they struggle to fully satisfy the functions of money, in part as of erratic valuations.

When it was evaluating different forms of money in the report like cash, cryptocurrencies, private e-money, as well as commercial bank deposits, the IMF has concluded that cryptocurrencies are the least attractive option to choose.

The organization continued saying that cryptocurrencies also received a low score in settlement speed because of the current technological limitations, even though it acknowledged that they actually offer the advantage of anonymity, while technology limitations may eventually be overcome.

Still, the IMF said that research on some digital currency should also continue resolutely given that the questions to be answered are profound, as well as challenging and they also have far-reaching implications.

Digital currencies offer promise when financial inclusion in the question

While there’s seems to be a move towards digital currency, it is not without any risk. In her speech, Christine said that digital currency actually offers excellent promise when it comes to financial inclusion and that it also provides privacy in payments, but at the same time it could pose some risks to financial integrity, as well as stability.

There is also a trade-off between privacy and financial integrity, concluded Christine, adding that central banks can also design a digital currency, but anti-money laundering, as well as terrorist financing controls,  will nonetheless run in the background.

Lagarde also mentioned that this setup is going to be good for users, but bad for criminals, and it will be even better for the state, relative to cash. Of course, there are still some challenges. The purpose is to encourage exploration at this point.


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