The International Monetary Fund (IMF) has reaffirmed its interest in cryptocurrencies through a report Monetary Policy in the Digital Age which concludes, interestingly, that: “Crypto assets may one day reduce demand for central bank money.”
The report which centres on virtual currencies examines the evolution of money analysing the pros and cons of crypto assets the dangers they pose on the functionality and relevance of central banks and proposes solutions thereto.
The IMF report argues that the global financial crisis and the bailouts of major financial institutions renewed skepticism on the central banks’ monopoly on the issuance of currency consequently leading to the mushrooming of Bitcoin and other crypto assets.
Read a brief analysis of the IMF Report by Brian Tororei here.
These assets, the IMF argues, may one day serve as alternative currencies thus reducing demand for fiat currencies on the account that they offer anonymity of cash, allow transactions at long distance and the unit of transaction can potentially be more divisible thus proving more attractive for micro payments in the sharing and service-based digital economy.
The IMF correctly points out that there are hurdles that crypto assets need to clear before they achieve their full potential including their present high volatility and risk and the fact that they enjoy less trust than fiat currencies.
The IMF also argues that the central banks could counter the pressure that cryptocurrencies may exert on fiat currencies through a raft of measures including but not limited to making their fiat currencies better and more stable units of account and being open to fresh ideas and new demands, as economies evolve; enhancing regulation of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage on account of lighter regulation; and making their money attractive for use as a settlement vehicle.
Read more here.