The underlying technology of crypto-assets—distributed ledger technology, or DLT—could help financial markets function more efficiently, IMF chief Christine Lagarde said in a blog post.
As Lagarde examined the promise that cryptocurrencies offer, she said there was hope for a world where firms using digital currencies could coexist alongside traditional banks.
“There is hope that decentralized applications spurred by crypto-assets will lead to a diversification of the financial landscape, a better balance between centralized and decentralized service providers, and a financial ecosystem that is more efficient and potentially more robust in resisting threats,” Lagarde said.
She added, however, that regulators should remain vigilant, as crypto-assets have the potential to magnify the risks of highly leveraged trading, and to increase the transmission of economic shocks should they become more integrated into mainstream financial products.
“Understanding the risks that crypto-assets may pose to financial stability is vital if we are to distinguish between real threats and needless fears. That is why we need an even-handed regulatory agenda, one that protects against risks without discouraging innovation,” the IMF head said.
Lagarde believes policymakers should keep an open mind and work toward an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit.
She also considers that if privately issued crypto-assets remain risky and unstable, there may be demand for central banks to provide digital forms of money.
Lagarde has previously issued warnings over the risks posed by Bitcoin and other digital currencies, calling for global regulators.
By Siranush Ghazanchyan