The head of the International Monetary Fund believes it’s time for global central banks to explore the idea of a state-backed digital currency.
“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy,” said Christine Lagarde in prepared remarks for delivery Wednesday local time at the Singapore Fintech Festival.
Lagarde’s remarks come on the back of the release of an IMF paper titled “Winds of Change: The Case for New Digital Currency.”
Focusing on domestic use of the nascent technology, Lagarde said virtual currencies could improve businesses conditions in remote regions where cash may no longer be an option, adding that the private sector shows little interest in helping marginalized communities: “We know that banks are not exactly rushing to serve poor and rural populations.”
The former lawyer, who has been at the helm of the IMF since 2011, continued by saying that a state-backed coin could level the playing field with traditional payment companies that lean toward monopolies due to economies of scale.
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The idea of a central bank-issued digital currency is gaining momentum. In May, the Bank of England published a working paper on the effect of such a tool on balance sheets of both central banks and commercial banks. At the time of publishing, the Bank of England said it does not currently plan to issue such a virtual currency.
And in Canada, Mohammad Davoodalhosseini, a senior economist at the Bank of Canada, published a study in which he concluded that a state-issued digital currency would increase consumption by 0.64% in Canada and 1.6% in the U.S. thanks to greater flexibility in conduction monetary policy operations.
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In previous comments, Lagarde has spoken favorably of the opaque industry. In an April blog post, she said cryptocurrencies have the potential to reduce transaction costs and speed up cross-border payments and said blockchain, the distributed ledger technology that underpins cryptocurrencies like bitcoin BTCUSD, -0.29% , could aide financial market efficiency.
Her latest remarks were her most supportive. While noting risks — most notably around security and financial instability — Lagarde finished by saying it’s time governing bodies put resources into the fast-moving industry before they are left behind.
“The case is based on new and evolving requirements for money, as well as essential public policy objectives. My message is that while the case for digital currency is not universal, we should investigate it further, seriously, carefully, and creatively,” she said. “Technology will change, and so must we.”
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