IMF says central banks could issue digital money

Written by Hannah McGrath

The head of the International Monetary Fund Christine Lagarde has raised the prospect of central banks around the world issuing their own digital currencies.

Speaking at an event in Singapore this morning, the BBC reported that Ms Lagarde addressed concerns raised by regulators over the growth of digital currencies such as Bitcoin, which allows for unregulated and anonymous transfers of value between digital wallets, leaving the door open to criminal uses.

In her conference address, Lagarde noted that societies around the world will need to respond to the rise of non-cash payments as a result of the digital economy.

“I believe we should consider the possibility to issue digital currency,” she said. “There may be a role for the state to supply money to the digital economy.”

Lagarde added: “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."

In March this year, Bank of England governor Mark Carney said that cryptocurrencies were too volatile to provide a viable digital system of money at present, but later said the bank is open minded on investigating the issue of a Central Bank Digital Currency (CBDG).

This preceded a BoE report relased in June which said the bank had taken a “material step forward” in addressing one of the major stumbling blocks to establishing a CBDC by setting out four core design principles that would underlie any future system.

The fact that the central bank digital currency (CBDC) would be issued and underwritten by the state - and not a private firm - could provide greater safety for consumers, in turn increasing their uptake.

“The more people you serve, the cheaper and more useful the service,” Lagarde was quoted as saying. “Private firms may under-invest in security to the extent they do not measure the full cost to society of a payment failure."

But while there were potential use cases for central banks, the IMF chief said the case for digital currency is “not universal” and should be explored “seriously, carefully and creatively”.

In June, the European Parliament’s Economic and Monetary Affairs Committee published a paper stating that CBDCs could create a more stable financial system, but should not supplant traditional due to scalability limitations.

Despite the widespread caution previously expressed by central banking authorities and financial insititutions, including the IMF, Lagarde said that central banks of Canada, China, Sweden and Uruguay were all at the point of “seriously considering” digital currency proposals.

Sweden’s Riksbank has one of the most advanced programmes for exploring a CBDC - the ‘e-krona’ - and has drawn up plans to phase out physical currency in favour of electronic money as the use of cash payments declines in the country.

An e-krona could ensure that the general public will still have access to a state-guaranteed means of payment, read a statement, which cautioned that adopting a position on whether Sweden should introduce an e-krona will take time.