IMF Chief Lagarde On ‘Dark Side’ Of Crypto: Blockchain is ‘Exciting’ But Needs Regulations
IMF Chief Christine Lagarde further states the need for crypto market regulation to protect customers and prevent money laundering in an IMF blog post.
International Monetary Fund (IMF) Chief Christine Lagarde said that crypto markets must be regulated by the same laws that apply to the traditional markets in an IMF blog post published today, March 13.
The post, “Addressing the Dark Side of the Crypto World,” begins by praising the virtues of Blockchain technology, which she refers to as an “exciting advancement that could help revolutionize fields beyond finance.” However, Lagarde adds that regulators must “understand the peril that comes along with the promise.”
In terms of specific ways to enact regulations that will protect consumers in the crypto markets, Lagade writes that one must “fight fire with fire.” She brings up two examples: using digital ledger technology (DLT) to “create registries of standard, verified, customer information along with digital signatures,” and using biometrics, artificial intelligence, and cryptography to more quickly find suspicious transactions.
As cryptocurrencies are decentralized, anonymous, and have no inherent need for a central bank, Lagarde sees a potential for their use in money laundering and financing terrorism. She mentions the example of darknet marketplace Alphabay, which had more than $1 bln exchanged through crypto on its platform by the time it was shut down in July 2017.
Lagarde writes that cryptocurrencies could threaten the stability of traditional financial markets, and that regulations must be developed on a global scale with help from the IMF:
“No country can handle this challenge alone [...] Since crypto-assets know no borders, the framework to regulate them must be global as well.”
Lagarde’s goal is to give crypto consumers the same protection that they have in traditional markets, and references several agencies which she sees as good exemplars of regulatory diligence; the Financial Stability Board (FSB), which observes fintech innovation, and the Financial Action Task Force (FATF), which fights money laundering and terrorism financing. The FATF is currently preparing a report on ways to prevent crypto use in money laundering for the upcoming G20 summit.
Lagarde’s takeaway is that crypto is “somewhere in between” a fad and a revolution, and that only global cooperation, along with the IMF, can “harness the potential of crypto-assets while ensuring that they never become a haven for illegal activity or a source of financial vulnerability.”
Lagarde has previously said that she believes crypto regulation is both inevitable and necessary. However, she has also spoken positively of the potential role for cryptocurrencies to play in countries with weak currencies.