Christine Lagarde: Cryptocurrencies Should Not Be Ignored by Governments

International Monetary Fund (IMF) chief Christine Lagarde said that virtual currencies should not be dismissed outright by various governments around the world. She further claimed that the digital currencies could provide conventional government-issued tenders a “run for their money.”

At a conference held in London, England, Lagarde said that different countries, particularly those with “weak institutions and unstable national currencies” may directly adopt a cryptocurrency.

"Instead of adopting the currency of another country – such as the US dollar – some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0. 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."

Why digital currencies are attractive

Lagarde cited several factors that may drive the adoption of virtual currencies. Among them is the possible shift in consumer preference for new currencies which are “easier and safer” than traditional ones.

These will be further improved if the digital currencies become more stable.

Lagarde, however, clarified that the takeover of cryptocurrencies over conventional ones is still a distant prospect.

This is because virtual currencies are still “too volatile, too risky, too energy intensive and because the underlying technologies are not yet scalable.”

IMF’s position on virtual currencies

Meanwhile, the IMF continued to promote a balanced approach to digital currency regulation.

In its early 2016 staff paper, IMF considers distributed ledgers to have the capability to revolutionize the financial sector through cost reduction and deeper financial inclusion in the long term.

Lagarde also cited its support for the financial applications of Blockchain technology.