The International Monetary Fund (IMF) has recently published a blog post addressing the rise of the cryptocurrency industry and the threats it poses that may potentially drive the banking monopoly to obsolescence while prompting the Securities and Exchange Commission (SEC) to appoint a specialist cryptocurrency advisor.
The International Monetary Fund, one of the most powerful forces in the world of economy, has published a blog post titled “Monetary Policy in the Digital Age” in which fund director Dong He suggested that the cryptocurrency industry may likely overthrow the prevailing monopoly among central banks, positing that in order to remain relevant, these financial institutions must learn to adapt to the economy’s constant evolution and the demands coupled with it.
According to blog, in order to survive the growing trend of decentralization, banks must “strive to make fiat currencies better and more stable units of account,” underscoring that the best approach towards economic stability is by introducing “effective monetary policy” and being open to novel concepts.
However, this alone does not guarantee protection against the risks associated with cryptocurrencies, as the post suggested implementing stringent regulatory measures to prevent cryptocurrencies from gaining any “unfair competitive advantage” and minimize the risk of cryptocurrencies being exploited for “money laundering and the financing of terrorism.”
In addition, IMF also suggested the possibility of introducing Central Bank Digital Currencies capable of facilitating peer-to-peer exchange.
The post also explored potential outcomes that may result in the banks’ failure to adapt to this new era of digital finance, surmising that the central banks’ monetary policies may possibly be undermined, should the demand for cryptocurrency outweighs bank-issued currencies. As explained in the blog post:
“Central banks typically conduct monetary policy by setting short-term interest rates in the interbank market for reserves (or clearing balances they keep with the central bank). According to King (1999), ceasing to be the monopoly supplier of such reserves would indeed deprive central banks of their ability to carry out monetary policy.”
Furthermore, the post also postulated that the rise of cryptocurrency may be a representation of a deeper historical pattern that has been seen in the evolution of finance. As IMF added further:
“Monetary systems seem to have alternated between commodity and credit money throughout history,” and that the advent of cryptocurrency may serve as a catalyst for another historic one-eighty.
Albeit practical, the IMF is resolute in its call for rigorous regulations that could effectively prevent the risk associated with cryptocurrencies, stressing that their valuation could stabilize through improved issuance rules. Sharing IMF’s stance on developing a solid regulatory framework, the SEC has also recently appointed Valerie Szczepanik as a new advisor tasked to oversee cryptocurrency regulations and the application of US securities law to the cryptocurrency sector.
At a conference on Financial Fraud held earlier this year, Szczepanik, who formerly held a post in the Division of Enforcement’s Cyber Unit, indicated plans of taking a more balanced approach to regulating cryptocurrencies, outlining the need for an equilibrium between safeguarding investors’ best interest and fostering the growth of the nascent technology. As Szczepanik clarified:
“We do not want to chill the markets…the promise of blockchain technology is not one that we want to ignore.”
Despite the commission’s seemingly softening stance on the crypto industry, a number of crypto community members still remain skeptical, speculating that the SEC’s move may be likely leaning more towards smothering innovation, with John McAfee even going so far as to predict a looming currency war against “powerful forces trying to derail the progress of the cryptocurrency revolution.”