The digital currency revolution is opening new opportunities, but regulators and the public need to manage new risks and threats IMF Managing Director Kristalina Georgieva said Thursday in Washington, DC (July 29).
The Fund published two new papers on the rise of public and private digital currencies Thursday. It said that that electronic money holds great promise for increasing efficiency in transactions, but that regulators must have open eyes about the pitfalls and act to maintain public trust.
“It is a revolution because of the tremendous opportunity, this shift in payment systems to central bank digital currency, stable coins provides to us as consumers in terms of speed, cost, accessibility,” Georgieva said in an online session of the Fund’s “The Exchange” series with Prime Minister John Rolle of the Bahamas and moderated by CNN International anchor Julia Chatterley.
“It is also an evolution because it takes time for countries to have in place the physical infrastructure for digital payments and also the institutional infrastructure. And I want to stress the latter. The regulators are wrestling with very important questions of trust, interoperability, the risks associated with shifting gear in that digital direction, like risks of cyber attacks or of money laundering and of crime being committed on digital platforms. So for us at the IMF, this presents a tremendous opportunity to work with the membership so they can capture the opportunities and manage the risks,” said Georgieva.
The Bahamas worked with the IMF and others to introduce the world’s first Central Bank Digital Currency (CBDC) – the Sand Dollar. But Prime Minister John Rolle of the Caribbean island country drew a sharp distinction between the Sand Dollar and more speculative crypto-assets such as Bitcoin.
“And I think when you when you narrow it like that, we're not in the business of trying to provide something that looks and feel like cryptocurrency. Our effort is actually to dissuade persons from looking at CBC as something that they should hoard. We want to maintain the role and the length of the banking system for the traditional use the people make and how they deploy savings. So it's very important that that we do not view central bank fiat, digital currency as something that is going to function and behave like the crypto assets,” Rolle explained.
The speculative nature of crypto-currencies can lead to wild swings in valuation, making it difficult for authorities to make rational fiscal decisions Georgieva warned.
“How do we know what we collect in taxes when Bitcoin goes up and Bitcoin goes down? How do we plan for expenditures? Remember in April, Bitcoin crossed sixty-five thousand and then it dropped almost half of it. That is a problem that the Ministry of Finance is going to be wrestling with. And it is not an easy one,” she laid out.
And there is also a very real impact on the environment from the energy-intensive digital ‘mining’ of Bitcoin Georgieva noted. She said that island countries like the Bahamas were particularly aware of the impact of climate change on sea levels and possibly would see more damage than benefit from increased carbon output from servers cranking out crypto.
“How could we justify highly energy intensive mining of something for which they're much better stable and reliable substitutes? As I said in the beginning, it is OK to have an asset that people invest in when it is a more volatile asset, therefore riskier asset. It takes adventurous investors, but that's fine. What is a problem is when we tied up the fate of the economy to the volatility of this asset and to have it to be currency, it has to be very broadly accepted,” she finished.
A link to the research released today may be found at IMF.org Making The Digital Money Revolution Work for All – IMF Blog