Although India’s central bank, Reserve Bank of India (RBI), and finance ministry both have long been paranoid about the idea of virtual currency adoption including trading in the country so much so that RBI had even banned cryptocurrencies from being transacted/traded through banks in India. However, Christine Lagarde, who is Managing Director of International Monetary Fund (IMF), a financial organization of 189 countries, has urged central banks all over the world to consider issuing digital currencies.
In a speech at the Singapore Fintech Festival on Wednesday, Lagarde highlighted the changing nature of money as demand for physical cash decreases around the world. She argued that state-backed cryptocurrencies could satisfy public policy goals related to financial inclusion, consumer protection, privacy and fraud prevention.
“I believe we should consider the possibility to issue digital currency,” said Lagarde. “There may be a role for the state to supply money to the digital economy. The advantage is clear. Your payment would be immediate, safe, cheap and potentially semi-anonymous. And central banks would retain a sure footing in payments.”
With this, IMF chief becomes one of the few global figures particularly in banking & finance arena, who has publicly advocated the digital money concept.
The IMF chief also cited the examples of central banks of Canada, China, Sweden and Uruguay, which were are all considering the introduction of their own digital currencies. She further said that a state-issued cryptocurrency would be a liability of the state, just like fiat money. Such currencies could reduce the cost of transactions while maximizing security and spreading adoption.
Notably, India too is considering to launch its own digital currency dubbed as ‘Lakshmi’. In September last year, a group of experts at RBI had examined the possibility of cryptocurrency which would become an alternative to the Indian rupee for digital transactions, and unlike Bitcoin, which is a non-fiat digital currency, Lakshmi will be fiat-cryptocurrency. A ‘Fiat’ currency means a currency that is forced into circulation by a government.
In one of the best example of what IMF head has said, Sweden, which is considered to be one of the most cashless economies in the world, is planning to pilot a version of a digital currency called e-krona in 2019.
In spite of IMF chief’s support for digital currency, it is very unlikely to influence the views of Indian regulator towards non-fiat cryptocurrencies such as Bitcoin, Ethereum or Ripple. Lately, authorities in India’s Silicon Valley Bangalore has shuttered and confiscated India’s first cryptocurrency ATM installed in the city by the startup Zebpay and even arrested a co-founder of the company. The police also conducted raids and seized equipment including laptops, mobile phones and credit cards.
On 13th of this month, IMF has released a new paper weighing the case for a central bank-backed digital currencies. It found it is too early to draw conclusions on the net benefits as every country faces unique circumstances around cash usage and e-money adoption. Lagarde said policymakers need to be open-minded about changes in the financial landscape.
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