Signs of the turnaround

IWF boss Lagarde praises the benefits of crypto fabrications and prophesies adaptation

The head of the International Monetary Fund (IMF) has once again commented on the topic of cryptocurrencies on the IMF blog. Surprisingly, in her last post, she praised the benefits and prophesied a shift from state-issued currencies to cryptocurrencies.

Already in mid-March, Lagarde had expressed about cryptocurrencies. The title of her contribution was "The Dark Side of the Crypto World".

The tenor of the article was that IMF cryptocurrencies should be closely monitored to address the "emerging threat" and ensure a stable financial system. On the other hand, her focus has been on the anonymity of cryptos, which she believes are a potentially major threat to the fight against money laundering and terrorist financing.

For this purpose, she referred in particular to AlphaBay. The platform was until last year the largest online marketplace for online crime (illegal drugs, hackers, firearms and toxic chemicals) before it went offline. Anonymous cryptocurrencies were used on the large scale for money laundering and terrorist financing. Thus, AlphaBay is a prime example of the danger posed by cryptocurrencies, according to Lagarde.

In her latest post, she talks about the benefits of cryptocurrencies and even predicts a shift from state-issued currencies to cryptocurrencies.

The head of the International Monetary Fund (IMF) has once again commented on the topic of cryptocurrencies on the IMF blog. Surprisingly, in her last post, she praised the benefits and prophesied a shift from state-issued currencies to cryptocurrencies.

Already in mid-March, Lagarde had expressed about cryptocurrencies. The title of her contribution was "The Dark Side of the Crypto World".

The tenor of the article was that IMF cryptocurrencies should be closely monitored to address the "emerging threat" and ensure a stable financial system. On the other hand, her focus has been on the anonymity of cryptos, which she believes are a potentially major threat to the fight against money laundering and terrorist financing.

For this purpose, she referred in particular to AlphaBay. The platform was until last year the largest online marketplace for online crime (illegal drugs, hackers, firearms and toxic chemicals) before it went offline. Anonymous cryptocurrencies were used on the large scale for money laundering and terrorist financing. Thus, AlphaBay is a prime example of the danger posed by cryptocurrencies, according to Lagarde.

In her latest post, she talks about the benefits of cryptocurrencies and even predicts a shift from state-issued currencies to cryptocurrencies.

The most notable statements (freely translated), we would like to present here.

The technology behind cryptocurrencies - including the blockchain - is an exciting advance that could help revolutionize non-financial sectors. It could, for example, create the financial inclusion of people by providing new, low-cost payment methods that lack bank accounts.

Lagarde speaks, as expected, but also the comparison with the tulip mania that hit Holland in the 17th century, and the dot-com bubble.

With more than 1,600 crypto-assets in circulation, it seems inevitable that many will not survive the process.

Nevertheless, she seems to be aware that cryptocurrencies as a whole are not short-lived mania, but will establish themselves permanently:

Just as some technologies that have emerged from the dot-com era have changed our lives, cryptocurrencies that survive could have as significant an impact on how we store, invest, and pay our bills in the future.

It also promotes an open debate on the topic by policymakers and a well-balanced regulatory framework that minimizes risks to investors while at the same time not restricting the creative process.

The underlying technology, distributed ledger technology, could help financial markets work more efficiently. Self-executing and self-enforcing smart contracts could eliminate the need for some intermediaries.

What do cryptocurrencies mean for global financial stability?

Regarding the question of whether cryptocurrencies threaten global financial stability, it takes a well-known opinion, as expressed by the President of the Bank of England prior to the G20 Summit of Finance Ministers:

Our preliminary assessment is that cryptocurrencies are not an immediate threat given their small size and limited links to the rest of the financial system. Nevertheless, supervisors should remain vigilant: cryptocurrencies can [...] increase the transmission of economic shocks should they be more integrated into current financial products. Regulators may find it harder to ensure the stability of a decentralized financial system. Central banks could face more difficulties in the event of a crisis than acting as lenders of last resort.

From our point of view, this risk also exists with the IMF and central banks as the central body, as the 2008 financial crisis has shown. Finally, Lagarde explains in the article:

Before cryptocurrencies can change financial activities in a meaningful and lasting way, they must earn the trust and support of consumers and governments. An important first step will be to reach consensus within the global regulatory community on the role that crypto-assets should play.

All in all, Lagarde draws a very positive conclusion with that and credits cryptocurrencies with legitimacy. In many parts we even have to be right.

In our view, around 1,600 crypto currencies are too much. A clean-up of the market, whether in one go or as a creeping process, inevitable. But the big cryptocurrencies (Bitcoin, Ethereum, ...?) Are going to usher in a new era, as the surviving dot-com bubble tech companies have done.

Nevertheless, it is also clear in places that regulation measures will play an important role in the future. In this respect, 2018 will continue to be an exciting year in terms of the regulation of cryptocurrencies.