Cryptocurrencies can transform financial activity

20 Apr, 2018 - 00:04 0 Views
Cryptocurrencies can transform financial activity IMF Managing Director Christine Lagarde

eBusiness Weekly

A judicious look at crypto-assets should lead us to neither crypto-condemnation nor crypto-euphoria, said IMF managing director Christine Lagarde, adding that crypto-assets could have a significant impact on how people save, invest and pay their bills.

This comes as Zimbabwe’s cryptocurrency exchange, Golix introduced Zimbabwe’s first ever bitcoin ATM early this month, which allows bitcoin holders to withdraw US dollars and to trade in the cryptocurrency.

In her paper released Monday afternoon, Lagarde who last month critiqued the dark side of crypto-assets, including their potential use for money laundering and the financing of terrorism, highlighted that policymakers should keep an open mind and work toward an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit.

“Crypto-assets enable fast and inexpensive financial transactions, while offering some of the convenience of cash. Some payment services now make overseas transfers in a matter of hours, not days. If privately issued crypto-assets remain risky and unstable, there may be demand for central banks to provide digital forms of money”, she said.

Her paper, titled An Even-handed Approach to Crypto-Assets, also postulates that the underlying technology of crypto-assets of distributed ledger technology (DLT) could help financial markets function more efficiently; adding that self-executing and self-enforcing “smart contracts” could eliminate the need for some intermediaries. She gave an example the Australian Securities Exchange which is planning to use DLT to manage the clearing and settlement of equity transactions.

According to Lagarde, another promising use for DLT is secure storage of important records, giving an example of healthcare companies that are already studying how to use the technology to maintain confidential medical data while providing access to insurers and other authorized users.

“In developing economies, such advances can help secure property rights, increase market confidence and promote investment.”, she said. The IMF boss also opined that while the fintech revolution will not eliminate the need for trusted intermediaries, such as brokers and bankers, there is hope that decentralized applications spurred by crypto-assets will lead to a diversification of the financial landscape, a better balance between centralized and de-centralized service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats.

On implications of such developments for financial stability, Lagarde said that preliminary assessments conducted by the bank established that given their still-small footprint and limited links to the rest of the financial system, crypto-assets do not pose an immediate danger.

“Even so, regulators should remain vigilant: crypto-assets have the potential to magnify the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated into mainstream financial products.

“Moreover, banks and other financial institutions will face challenges to their business models, should there be a large-scale shift away from government-issued currencies toward crypto-assets. Regulators might find it harder to ensure the stability of a more diffuse and decentralized financial system. Central banks might have more trouble acting as the lender of last resort in case of a crisis”, said the IMF chief.

Lagarde also said that before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities, adding that an important initial step will be to reach a consensus within the global regulatory community on the role crypto-assets should play.

“We must keep abreast of rapid developments in markets and technologies. We must act quickly to close the knowledge gaps that inhibit the effective monitoring of crypto-assets. There should be systemic risk assessment and timely policy responses, as well as measures to protect consumers, investors, and market integrity, she said.

According to Lagarde, understanding the risks that crypto-assets may pose to financial stability is vital if stakeholders are to distinguish between real threats and needless fears, further calling for an even-handed regulatory agenda that protects against risks without discouraging innovation.

“A clear-eyed approach can help us harness the gains and avoid the pitfalls of the new crypto-assets landscape”. — FinX.

Share This:

Sponsored Links

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds