With the rise in the popularity of digital assets, it is the opinion of the Managing Director of International Monetary Fund, Christine Lagarde, that it is time for governments and banks to start issuing state-backed Cryptocurrencies. This would result in a global shift to a cashless economy and can be achieved only through a public-private partnership, where central banks can handle settling transactions while private firms can focus on innovations.
“The central bank focuses on its comparative advantage back-end settlement—and financial institutions and start-ups are free to focus on what they do best—client interface and innovation. This is a public-private partnership at its best.”
At the Singapore Fintech Conference, Lagarde supported the question of central bank issued digital currencies, and said,
“I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy.”
Lagarde also spoke about how Government and Central banks have a critical role to play in the digital currency ecosystem as the rise of electronic payments opposing a challenge for them on a global scale.
The scenario now is that digital economy is almost entirely reliant on the private financial sector which gives a select few private payment providers a lot of power. Since more and more people are switching to digital money, it is devaluing the existing fiat framework all the more. It is under the circumstances that the IMF head believes that introducing CBDC is a way that central banks can win this losing battle.
Lagarde, in her speech, stated:
“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.”
Though many believe that cryptocurrency to be the ‘Evil Spawn of the Financial Crisis’ the IMF chief is of the opinion that if government-backed tokens are introduced, transactions will become more cost-effective and commonplace and CBDCs would also be much more secure than cryptocurrencies, due to them having a state sanction. She says that they will also facilitate financial inclusion by reaching out to the sidelined regions of the world and ensure consumer protection and privacy in payments.