A deputy director for the International Monetary Fund’s Monetary and Capital Markets Department believes that central banks need to offer “better” fiat currencies in order to fend off any potential competition from cryptocurrencies.
The suggestions came in an article published Thursday, penned by deputy director Dong He. In that article – which boasts the tagline “Crypto assets may one day reduce demand for central bank money” – He argues that central banks may want to consider adopting some of the concepts in order to “forestall the competitive pressure crypto assets may exert on fiat currencies.”
It’s a notable statement and one that echoes past remarks from He as well as other IMF officials, including director Christine Lagarde. Indeed, Lagarde, back in March, said during an event that regulators should deploy some elements of the tech in order to “fight fire with fire.”
He’s argument in the latest piece is based on the possibility that, should cryptocurrencies and crypto-assets see wider adoption, there is a chance that central banks will lose their ability to influence the economy through tactics such as interest rate changes.
The deputy director suggested that tightening regulation could provide a boost for central banks.
“Second, government authorities should regulate the use of crypto assets to prevent regulatory arbitrage and any unfair competitive advantage crypto assets may derive from lighter regulation,” He wrote. “That means rigorously applying measures to prevent money laundering and the financing of terrorism, strengthening consumer protection, and effectively taxing crypto transactions.”
He also pointed to the idea of central banks creating their own digitized assets that could be exchanged in a peer-to-peer fashion
“For example, they could make central bank money user-friendly in the digital world by issuing digital tokens of their own to supplement physical cash and bank reserves. Such central bank digital currency could be exchanged, peer to peer in a decentralized manner, much as crypto assets are,” the article went on to say.
It’s an idea that a number of central banks are researching, though opinions differ on the effectiveness of such proposals. Just this week, for example, an official for the Hong Kong Monetary Authority (the region’s de facto central bank) said that it currently has no plans for a digital currency launch in spite of its research in the area.
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