When the chief of the International Monetary Fund speaks, people and financial markets tend to listen, and react. IMF chief Christine Lagarde had a word or two to say about the global cryptocurrency debate, and she expressed her views at the 33rd Asean Summit, currently being conducted in Singapore. At the Singapore Fintech Festival held on Wednesday, the 14th, she calmly said that, “Having central banks issue digital currency can bring about financial inclusivity, better security and consumer protection, as well as allay privacy concerns.”
In what may have sounded like heresy to crypto zealots that have believed for years that their favorite virtual currency would eventually supercede and replace domestic fiat varieties, as well as the central banks that controlled them, Ms. Largarde went on to say: “Digital currencies are likely to become more convenient to use and integrated with social media. They will be readily available for online and person-to-person use, including making micro-payments. And of course, we expect it to be cheap and safe, protected against criminals and prying eyes. Identities would not be disclosed to third parties or governments unless required by law.”
On the one hand, the IMF chief argues for central banks to step in to lead the revolution because, “Private firms may under-invest in security in the nascent days of cryptocurrencies. Trust in digital currencies would be eroded in the event of a private system breakdown.” On the other had, she also wants the ability to pierce the veil of anonymity, which is a trademark of the cryptocurrency revolution. Yes, there may be issues with organized crime and money laundering, but banks have never been nimble with new technology, nor would anyone expect them to change their colors overnight.
Unfortunately, financial markets did not take Ms. Largarde’s comments lightly. Bitcoin and the entire lot of altcoins had to weather a storm of selling. When all was said and done, the market capitalization of all coin programs fell from $210 to $180 billion. Bitcoin, during its freefall, dipped below $5,500, a level not seen since last October. Analysts, however, were not ready to convey such power to the presumptuous IMF chief. An impending “hardfork” of Bitcoin Cash also had a major influence, as well as an edgy investor base that quickly rejoined the equity bandwagon in its recovery.
Is another concerted attack by the central banking establishment in the offing? Ms. Lagarde’s comments were shrouded in persuasive language about helping “the little people” that depend on cash: “Banks are not exactly rushing to serve poor and rural populations.” We doubt if such altruistic statements will drive economic considerations.
We wonder if Ms. Lagarde reviewed her notes with Ravi Menon, the managing director of the Monetary Authority of Singapore. Back in March, Menon had remarked: “The Republic’s central bank does not have a compelling argument to issue digital currency, as digital payment networks are already conducting electronic transactions here.” Yes, private entities are doing quite well, but regulation will help bring credibility and stop these external arguments that central banks should somehow be in control.