The head of the International Monetary Fund (IMF), Christine Lagarde, has said regulators should use blockchain technology to curb the “peril that comes along with the promise” of cryptocurrencies.

“The same innovations that power crypto-assets can also help us regulate them. To put it another way, we can fight fire with fire,” Lagarde wrote in an IMF blog post on Tuesday.

IMF

Lagarde warned that cryptocurrencies could create financial instability, as well as facilitate terrorism and money laundering, arguing that distributed ledger technology and cryptography could be used in internationally coordinated regulatory efforts.

Distributed ledger technology, she claimed, “can be used to speed up information-sharing between market participants and regulators.”

Lagarde wrote:

“Those who have a shared interest in maintaining safe online transactions need to be able to communicate seamlessly. The technology that enables instant global transactions could be used to create registries of standard, verified, customer information along with digital signatures. Better use of data by governments can also help free up resources for priority needs and reduce tax evasion, including evasion related to cross-border transactions.”

In the post, Lagarde also said that cryptography, in addition to AI and biometrics, could be used to “remove the “pollution” from the crypto-assets ecosystem.”

According to Lagarde, these technologies, “can enhance digital security and identify suspicious transactions in close to real time. This would give law enforcement a leg up in acting fast to stop illegal transactions.”

The IMF managing director went on to suggest that regulators should look toward the frameworks of the Financial Action Task Force (FATF) and the Financial Stability Board to inform their own rules.

The views expressed in the blog post largely align with Lagarde’s previous comments on cryptocurrencies, though the literal fiery rhetoric could indicate that the IMF is seriously entertaining intervening in the crypto industry sooner rather than later.

Christine Lagarde image via Shutterstock

Leave a Reply

The head of the International Monetary Fund (IMF) believes that cryptocurrencies may give traditional government-issued ones a “run for their money.”

Speaking at a conference in London, IMF chief Christine Lagarde told attendees that she thinks “it may not be wise to dismiss virtual currencies.”

IMF

Notably, she outlined possible scenarios in which a country – particularly those with “weak institutions and unstable national currencies” might actually embrace one more directly.

“Instead of adopting the currency of another country – such as the U.S. dollar – some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0,” she said.

One of the driving factors behind that potential evolution would be a shift in consumer preference for new currencies that are “easier and safer” than existing ones. That scenario could be further hastened if cryptocurrencies “actually become more stable,” she said.

Lagarde went on to say:

“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

That said, Lagarde noted earlier in her speech that such an outcome is, in her view, a distant prospect, saying that cryptocurrencies are “too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.”

To date, the IMF has advocated a balanced approach on cryptocurrency regulation, voicing that position in a January 2016 staff paper. Lagarde has also voiced support for financial applications of blockchain, a subject that the IMF has explored on an organizational level as well.

Image Credit: 360b / Shutterstock.com

Leave a Reply