The International Monetary Fund (IMF) has published a new report on the issue of global monetary policy in an age of increasing digitization. No such report in 2018 would be complete without a mention of cryptocurrency, and cryptocurrency enthusiasts will be intrigued to learn that the report is indeed centered around virtual currencies. Most notably, however, the report comes to the conclusion that cryptocurrency assets may ”reduce the demand for central bank money”.
This report was produced after IMF staff discussions, which supposedly touched on the possibility that virtual currencies could one day reduce the demand for fiat currencies, by creating a ”shift from credit money to commodity money”. This is not the first time that the International Monetary Fund has shown interest in blockchain technology and cryptocurrencies. IMF’s Managing Director, Christine Lagarde, has heaped praise upon virtual currencies, likening the upcoming adoption of virtual currencies to the introduction and adoption of the personal computer, and the IMF recently used a picture of Bitcoin on its website to illustrate the ”next evolution of money”. Nonetheless, the IMF is intricately tied to the United Nations, and some may find it surprising that such an established international actor is seemingly speaking out in favor of Bitcoin and cryptocurrencies as a whole.
The actual report went on to detail how recent financial crises and bank bailouts have led to general distrust of banks and established economic actors. The report highlights this as one of the primary drivers in increasing the adoption of digital currencies. Moreover, it also found that a potential ”payment shift” could dramatically alter people’s perception and adoption of fiat currency versus cryptocurrencies. The IMF report explains how money has through history seemingly been fluctuating between either being credit money or commodity money. Cryptocurrencies are a sort of commodity currency, and the IMF proposes that increased adoption of cryptocurrency would lead to a decreased demand for central bank issued credit currencies.
The IMF report noted, however, that cryptocurrency also has some hurdles to clear before it can be more widely adopted as a standard means of payment. The main obstacle is identified as being the volatility that some cryptocurrencies exhibit since the valuation of most cryptocurrencies is supposedly not “well anchored”. The report also goes on to suggest that a possible way for banks to counteract decreased demand for credit currencies could be through issuing cryptocurrencies of their own. These would be more stable than traditional cryptocurrencies, presumably akin to stablecoins. It remains to be seen whether the IMF report comes true, and whether or not central banks heed the report’s advice – however, the International Monetary Fund wields significant influence in the global finance sector.
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